Questions Covered in Video -...

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Questions Covered in Video

Chapter-2: Self Balancing Q.No.1: (PCC-Nov. 10) Gupta Traders keep their Ledger on the self balancing system. They

provide you the following information for the year ended 31st March, 2010:

Rs.

Debtors balance on 1st April, 2009

Credit sales

Returns inward

Returns outward

Cash received from customers

Discount received

Acceptances received

Bills receivables dishonoured

Bad debts written off

1,37,250

68,100

1,200

1,800

76,800

2,010

25,500

3,600

7,500

You are required to prepare General Ledger Adjustment A/c. in Sales Ledger of Gupta Traders.

Q.No.2: Suggest, with the help of entry, whether following transaction will have effect on self

balancing control account.

1. Cash sale

2. Cash purchase

3. Bills discounted

4. Bills receivable honoured

5. Bills payable honoured

6. Provision for bad and doubtful debt

7. Provision for discount on debtor

8. Bad debt recovered

Q.No.3: (IPCC-Gr.-I-May 11) On 1st October, 2010, the debit balances of debtors account is Rs.

77,500 in the books of M/s Zee Limited. Transactions during the 6 months ended on 31st March,

2011 were as follows:

Rs.

Total sales (including cash sales Rs. 14,000)

Payment received from debtors in cash

Bills receivable received

Discount allowed to customers for prompt payment

Goods rejected and returned back by the customer

Bad debts recovered (written off in 2009)

Interest debited for delay in payment

84,000

38,000

26,000

1,000

2,550

900

1,250

Out of the bills received, bills of Rs. 8,500 were dishonoured on due dates and noting charges

paid Rs. 250. Bills of Rs. 5,000 were endorsed to the suppliers.

You are required to prepare a Debtors Account for the period ending 31st March, 2011 in the

General Ledger of M/s Zee Ltd.

Q.No.4: From the following details write up the General Ledger Adjustment Accounts and the Bought

and Sold Ledger Adjustment Accounts as on 31st December 2010-

Debtors (1st January, 2010) .. Dr. 20,425

2

Debtors ( 1st January, 2010) .. Cr. 3,320

Creditors( 1st January, 2010) .. Cr. 30,408

Creditors( 1st January, 2010) .. Dr. 2,204

Purchases .. .. 1,25,200

Sales .. .. 2,28,209

Sales Return .. .. 208

Purchases Return .. .. 714

Cash paid to creditors .. .. 1,12,700

Bill received from debtors .. .. 9,300

Bill dishonoured .. .. 200

Bill accepted for creditors .. .. 7,400

Discount allowed to debtors .. .. 115

Discount allowed to debtors but later on disallowed 100

Cash received from debtors .. .. 2,08,700

Discount allowed by creditors .. .. 1,020

Cash paid to debtors .. .. 20

Transfers from debtors to creditors ledger 1,242

Cash purchases .. .. 4,320

Cash Sales .. .. 7,400

Bad debts written off (after deducting bad debts recovered 200/-)1,215

Closing Balance: Debtors Credit balance 2,150

Creditors Debit balance 3,500

Q.No.5: Suggest, with the help of entry, whether following transaction will have effect on self

balancing control account.

1. Transfer from debtor to creditor/ Transfer from creditor to debtor/ Transfer

2. Transfer debtor having credit balance to creditor/ Transfer creditor having debit to debtor

3. Bill of exchange received

4. Bill receivable endorsed

5. Endorsed Bill dishonoured

Q.No.6: Prepare the Sales Ledger Control Account and Purchases Ledger Control Account from the

following particulars:

Sales Ledger Purchase Ledger

Rs. Rs.

Debit balance as on 1-1-2011 1,50,000 1,000

Credit balance as on 1-1-2011 200 1,25,000

Credit sales and purchases 6,00,000 4,80,000

Cheque received and paid 6,50,000 4,50,000

Advance paid to creditors 20,000

B/R received and B/P accepted 50,000 50,000

Discount allowed and received 5,000 3,000

Returns 10,000 5,000

Transfer from Purchases to Sales Ledger 10,000 10,000

Bad debts 2,000

Reserve for discounts 10,000 5,000

B/R/B/P dishonoured 5,000 5,000

Debit Balances as on 30-6-2011 30,000 ?

Credit Balance as on 30-6-2011 ? 72,000

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Q.No.7: (IPCC-Gr.-I-Nov. 10) Ujju Enterprise furnishes you the following information for the

period October to December, 2009. You are requested to draw up Debtors Ledger Adjustment

Account in the General Ledger:

(i) Total sales amounted to Rs. 2,20,000 including sale of old motor car for Rs. 10,000 (book value Rs. 5,000). Total credit sales were 80% higher than the cash sales.

(ii) Cash collection from debtors amounted to 60% of the aggregate of the opening debtors amounting to Rs. 40,000 and credit sales for the period. Debtors were allowed discount of Rs.

10,000.

(iii) Bills receivables drawn during the period totaled Rs. 20,000 of which one bill of Rs. 5,000 was

dishonoured for non-payment as the party became insolvent, his estate realized 50 paise in a rupee.

(iv) A sum of Rs. 3,000 was written off as bad debts, Rs. 7,000 was realized against bad debts

written off in earlier years and provision of Rs. 6,000 was made for doubtful debts.

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Chapter-3: Average Due Date

Q.No.1: (IPCC-Gr.-I-May 10) Swaminathan owed to Subramanium the following sums:

Rs. 5,000 on 20th January, 2009

Rs. 8,000 on 3rd March, 2009

Rs. 6,000 on 5th April, 2009

Rs. 11,000 on 30th April, 2009

Ascertain the average due date. Interest rate 12% p.a. Calculate amount to be paid if paid on

(i) 15.04.2009 or (ii) 15.02.2009

Q.No.2: (IPCC-Gr.-I-Nov. 10) From the following details find out the average due date:

Date of Bill Amount (Rs.) Usance of Bill

29th January, 2009

20th March, 2009

12th July, 2009

10th August, 2009

5,000

4,000

7,000

6,000

1 month

2 months

1 month

2 months

Q.No.3: A trader having accepted bills falling due on different dates now desires to have his

bills cancelled & to accept a new bill for the whole amount payable on the average due date.

Calculate Av. Due date.

Date of Bill Date of Acceptance Amount Term/ usence of bill

01/03/2009 03/03/2009 5,400.00 2 months from date bill

06/03/2009 10/03/2009 4,300.00 3 months from date of Acceptance.

05/04/2009 10/04/2009 2,200.00 2 months after sight

15/04/2009 20/04/2009 1,325.00 1 months from date of signing.

10/05/2009 12/05/2009 3,500.00 60 days from date of bill.

Q.No.4: Two traders X & Y buy goods from one another each allowing the other 1 months

credit. At the end of 3 months the details are as follows; calculate the date upon which the

balance should be paid so that no interest is due to either X or Y.

Goods sold by X to Y -> i) 18/04/2010 Rs. 3,600.

ii) 15/05/2010 RS. 2,700,

iii) 16/06/2010 Rs. 2,800.

Goods sold by Y to X -> i) 23/03/2010 Rs. 5,200,

ii) 24/05/2010 Rs. 2,500.

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Q.No.5: (IPCC-Gr.-I-May 11)

A and B are partners in a firm and share profits and losses equally. A has withdrawn the following

sum during the half year ending 30th June, 2010:

Date Amount

January 15

February 10

April 5

May 20

June 18

5,000

4,000

8,000

10,000

9,000

Interest on drawings is charged @ 10% per annum. Find out the average due date and calculate

the interest on drawings to be charged on 30th June, 2010.

Q.No.6: Mr. A lends Rs. 5,00,000 to Mr. B on 1st Jan.,2010. Calculate the average due date and

interest, if interest @ 18% p.a. to be charged by A in each of the following alternative cases:

a. If the amount is repayable in 5 equal annual installments commencing from 1st January, 2011.

b. If the amount is repayable in 5 half yearly equal installments commencing from 1st January, 2011.

c. If the amount is repayable in three equal installments at an interval of two years commencing from 30th June, 2012.

d. If the amount is repayable in 5 equal installments as under:-

Ist on 01.01.2011; IInd on 1.7.2011; IIIrd on 1.7.2012; IVth on 01.01.2013; Vth on 01.01.2014.

Q.No.7: (May 07) A promissory note executed by Mr. X is due on 12.8.2007. What is the maturity

date of the promissory note including grace days?

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Chapter-4: Account Current

Q.No.1: From the following information, prepare account current on 30th September, 2010 to be

submitted by E to F. Interest is to be taken into account @ 12% per annum; it may be calculated to

the nearest rupee.

2010 Particulars Rs.

July 1 Debit balance b/f 13,500

5 Sold goods to F 9,000

15 Received cash from F 13,500

August 4 Sold goods to F 19,200

16 Received cash from F 9,000

September 1 Bought goods from F 21,000

2 Paid cash to F 7,500

12 Sold goods to F 9,600

15 Paid cash to F 6,000

Q.No.2: Rahul had a bank balance of Rs. 30,700 in his account with IOB on 1.9.2010. His other

transactions during the month of September are as follows:

Date Rs. Date Rs.

Deposits 4.9.2010 23,000 Withdrawal 6.9.2010 37,000

15.9.2010 23,500 13.9.2010 28,000

27.9.2010 24,000 25.9.2010 22,000

Prepare account current of Rahul with IOB on 30.9.2010 as per Product of Balance Method assuming

interest @14% p.a.

Q.No.3: (PCC-May 11) From the following transactions, draw up an account current by means of

product up to 31st December, 2010 to be rendered by X to Y and give the amount of interest

charging @8% per annum.

Date 2010 Particulars Amount (Rs. in thousands)

July 01

July 15

Aug 21

Aug 23

Oct. 23

Nov. 01

Dec. 03

Balance owing by Y

Goods sold to Y

Goods bought from Y

Cash received from Y

Y accepted X’s bill at 3 months

Goods bought from Y

Accepted a bill drawn by Y at 3 months

(due date of bill is on Sunday)

600

900

700

450

300

950

400

On 31st December, 2010, X and Y settled their account after considering the interest factor. Show

the cash amount received or paid by X on that date.

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Chapter-5: Account from Incomplete Records (SINGLE ENTRY SYSTEM)

Statement of Affairs Method

Q.No.1: Calculate profit earned under following cases.

(a) A person starts business with Rs. 20,000/-. He doesn’t maintain any books of accounts. No personal Transactions from business money. No credit sale (i.e. no debtors). No credit purchase

(hence no Creditors). He does business from rented place (hence no properties). All goods are immediately sold out (i.e. no stock).

At the end of the year he counts the cash & Bank balance which aggregates to Rs. 80,000/-.

(b) Now suppose in above case he withdraws Rs. 3000 p.m. for his household expenses then the

cash bank balance at the end will be only Rs. 44,000 (80,000 – 36,000) i.e. capital will be Rs.

44,000.

(c) Now suppose in above situation he also received during the year gift from his father Rs. 20,000 which he invested in the business, then closing cash bank balance will be Rs. 64,000/-

consequently closing capital will be Rs. 64,000/-

(d) Now suppose in above case there were credit sale, credit purchase, as well as stock holding. At

the end of the year he prepared the list of Debtors, Creditors & stock in hand which amounted to Rs. 25,000/-, Rs. 20,000 & Rs. 30,000 respectively. He also found that furniture was purchased

for Rs. 14,000/-. In this case the cash bank balance left was 15,000/-. Suppose depreciation of

Rs. 1,500 is to be charged on furniture.

Q.No.2: A and B are partners in a firm sharing profits and loss as A 60% and B 40%. They keep their

books on single entry system. On 1/1/2010, the following statement of affairs was extracted from this

book.

Liabilities Rs. Assets Rs.

Sundry Creditors 60,000 Plant 30,000

A’s Loan A/c 25,000 Stock 30,000

Capital Account Sundry Debtors 45,000

A 25,000 Cash at Bank 25,000

B 20,000 45,000

1,30,000 1,30,000

On 31.12.2010, the assets and liabilities were as follows:

Plant Rs. 50,000, Stock Rs. 40,000, Debtors Rs. 40,000, Cash Rs. 30,000, Loan A/c Rs. 25,000.

Creditor Rs. 45,000, Drawings - A Rs. 6,000 and B Rs. 4,000.

You are required to prepare a Profit and Loss statement for the year ended 31.12.2010, and a

statement of Affairs as at that date after taking into consideration the following additional

information:

1) Plant to be depreciated by 10% p.a. 2) Stock to be reduced to Rs. 35,000,

2) A reserve for bad debts to be raised @2.5% on Debtors,

3) Interest on partners' capital is to be allowed @5% p.a. and @ 10% on Drawings.

4) Allow interest on A's loan @ 6% p.a.

Q.No.3: (ICWA): The following is the position of Assets and Liabilites of A & B who does not

maintain Complete Books of Account. Capital of A at the beginning of the year was Rs. 10,000 more

than B and interest on capital is allowable @ 10% of opening Capital:

1.4.2010 31.3.2011

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Cash in hand 2,500.00 5,200.00

Cash at Bank as per Pass Book 15,200.00 20,200.00

Stock at shop at cost 20,000.00 25,000.00

Sundry Debtors 23,000.00 32,000.00

Sundry Creditors 32,000.00 23,000.00

Furniture 6,000.00 6,000.00

Machinery 20,000.00 25,000.00

Additional information:

(a) Partners have drawn A Rs. 3,000 p.m. and B Rs. 2,000 p.m. No interest is chargeable on drawings.

(b) Stock at shop includes goods sold for Rs. 5,000 at a profit of 20% not yet delivered. (c) Debtors on 31.03.2011 include Rs. 5,000 for goods sent out on consignment at 25% above cost,

and the goods were not sold until that date. (d) Depreciate Furniture 10% and Machinery @ 20% on closing balances.

(e) As on 31st March, 2011 cheque deposited but not credited by Bank Rs. 9,000 and cheque issued

not presented for payments of Rs. 6,500. Bank has also debited our accounts by Rs. 200 as Bank charges.

Prepare Statement of Profit & Loss for the year ended 31st March, 2011 and also a Balance Sheet on

that date.

Q.No.4: (PCC-May 10) The closing capital of Mr. B as on 31.3.2010 was Rs. 4,00,000. On 1.4.2009

his capital was Rs. 3,50,000. His net profit for the year ended 31.3.2010 was Rs. 1,00,000. He

introduced Rs. 30,000 as additional capital in February, 2010. Find out the amount drawn by Mr. B for

his domestic expenses.

Completed Account Method

Q.No.5: Shri Ram has a trading business for which the following procedures are followed:

1. All collections are deposited with the Bank each day.

2. To meet petty expenses a Cheque for Rs.1,500 is withdrawn from the Bank on the 1st day of

each month.

3. Payments made to Creditors during the year Rs.1,20,000.

4. Personal drawings out of Bank Rs.6,000.

5. Shri Ram sells goods at a profit of 33&1/3% on cost.

6. Prepare Profit and Loss Account for the year ended 31st December, 2010 and Balance Sheet as on that date from the above information.

The following figures are available from Shri Ram's records:

1-1-2010 (Rs.) 31-12-2010 (Rs.)

Cash-in-hand ... 150 300

Balance in Bank ... 40,000 31,000

Debtors ... 90,000 95,000

Creditors ... 90,000 80,000

Stock ... 15,000 25,000

Q.No.6: (Nov.2004)Lucky does not maintain proper books of accounts. However, he maintains a

record of his bank transactions and also is able to give the following information from which you are requested to prepare his final accounts for the year 2003:

1.1.2003 31.12.2003

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Rs. Rs.

Debtors

Creditors Stock

Bank balance Fixed assets

1,02,500

- 50,000

- 7,500

-

46,000 62,500

50,500 9,000

Details of his bank transactions were as follows: Rs.

Received from debtors Additional capital brought in

Sale of fixed assets (book value Rs. 2500)

Paid to creditors Expenses paid

Personal drawings Purchase of fixed assets

3,40,000 5,000

1,750

2,80,000 49,250

25,000 5,000

No cash transactions took place during the year. Goods are sold at cost plus 25%. Cost of goods sold

was Rs. 2,60,000.

Q.No.7: (IPCC-Gr.-I-May10) The books of account of Ruk Ruk Maan of Mumbai showed the

following figures:

31.3.2008

Rs.

31.3.2009

Rs.

Furniture & Fixtures

Stock

Debtors

Cash in hand & Bank

Creditors

Bills Payable

Outstanding Salaries

2,60,000

2,45,000

1,25,000

1,10,000

1,35,000

70,000

19,000

2,34,000

3,20,000

?

?

1,90,000

80,000

20,000

An analysis of the cash book revealed the following:

Cash sales

Collection from debtors

Discount allowed to debtors

Cash purchases

Payment to Creditors

Discount received from creditors

Payment for bills payable

Drawings for domestic expenses

Salaries paid

Rent paid

Sundry trade expenses

Rs.

16,20,000

10,58,000

20,000

6,15,000

9,73,000

32,000

4,30,000

1,20,000

2,36,000

1,32,000

81,000

Depreciation is provided on furniture & fixtures @ 10% p.a. on diminishing balance method. Ruk

Ruk Maan maintains a steady gross profit rate of 25% on sales.

You are required to prepare trading and profit and loss account for the year ended 31st March,

2009 and Balance Sheet as on that date.

Q.No.8: Shri Rahim furnishes you with the following information relating to his business :

a) Assets and liabilities as on

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1.1.2010 (Rs.) 31.12.2010 (Rs.)

Furniture (w.d.v.) 6,000 6,350

Stock at cost 8,000 7,000

Sundry debtors 16,000 ?

Sundry creditors 11,000 15,000

Prepaid expenses 600 700

Unpaid expenses 2,000 1,800

Cash in hand and at bank 1,200 625

b) Receipts and payments during 2010:

Collections from debtors, after allowing discount of Rs. 1,500 amounted to Rs. 58,500. Collections on

discounting of bills of exchange, after deduction of discount of Rs. 125 by the bank, totalled to Rs.

6,125. Creditors of Rs. 40,000 were paid Rs. 39,200 in full settlement of their dues. Payment for

freights inward Rs. 3,000. Amounts withdrawn for personal use Rs. 7,000. Payment for office furniture

Rs. 1,000.

Investment carrying annual interest of 4% was purchased at Rs. 96 on 1st July, 2010 and payment

made therefor. Expenses including salaries paid Rs. 14,500. Miscellaneous receipts Rs. 500.

c) Bills of exchange drawn on and accepted by customers during the year amounted to Rs. 10,000.

Of these, bills of exchange of Rs. 400 were dishonoured.

d) Goods costing Rs. 900 were used as advertising materials.

e) Goods are invariably sold to show a gross profit of 33 and 1/3% on sales.

f) Difference in cash book, if any, is to be treated as further drawing or introduction by Shri Rahim.

g) Provide at 2.5% for doubtful debts on closing debtors.

Rahim asks you to prepare Trading and Profit and Loss Account for the year ended 31st December,

2010 and the Balance Sheet as on that date.

Q.No.9: The following information is supplied from which you are required to prepare the Profit &

Loss Account for the year ended 31st December, 2010 & Balance Sheet as at that date:

Assets & Liabilities 1-1-10

(Rupees)

31-12-10

(Rupees)

Sundry Assets 18,000 20,000

Stock 14,000 19,000

Cash-in-hand 8,200 4,800

Cash-at-Bank 2,200 8,000

Debtors ? 26,000

Creditors 12,000 9,800

Miscellaneous Expenses Outstanding 1,000 600

Details relating to the year's transactions are: Rs.

Receipts in the year and discount credited to Debtors Accounts

Returns from Debtors

Bad Debts

Sales-cash and credit

Returns to Creditors

Payments to Creditors by Cheque

Receipts from Debtors deposited in to Bank

Cash purchases

Salary and Wages paid out of Bank

Miscellaneous expenses paid by cash

2,45,000

6,000

1,000

3,00,000

3,000

2,36,000

2,43,000

10,000

18,000

5,000

Drawings by cash

Purchase of Sundry Assets by Cheque

9,400

2,000

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Cash withdrawn from Bank

Cash sales deposited in Bank

Discount allowed by creditors

21,000

?

4,000

Q.No.10: (PCC-May 11) The following is the Balance Sheet of M/s. Neel and Company as on 31st

March, 2009:


Capital

Loan

Creditors

1,92,000

60,000

1,24,000

Building

Furniture

Motor car (for business)

Stock

Debtors

Cash in Hand

Cash in Bank

1,30,000

20,000

36,000

80,000

68,000

8,000

34,000

3,76,000 3,76,000

A riot occurred on the night of 31st March, 2010 in which all books and records were lost. The

cashier had absconded with the available cash. The following information is available.

(i) The sales for the year ended 31st March, 2010 were 20% higher than the previous year’s

sales. Firm always sells the goods at cost plus 25%; 20% of the total sales for the year

ended 31st March, 2010 were for cash. There were no cash purchases.

(ii) On 1st April, 2009, the stock level was raised to Rs. 1,20,000 and stock was maintained at this new level all throughout the year.

(iii) Collections from Debtors amounted to Rs. 5,60,000 of which Rs. 1,40,000 was received in cash. Business expenses amounted to Rs. 80,000 of which Rs. 20,000 was outstanding on

31st March, 2010 and Rs. 24,000 was paid by cheque.

(iv) Analysis of the pass book revealed the following for the year ended 31-3-2010:

Payment to creditors Rs. 5,50,000

Personal Drawing Rs. 30,000

Cash deposited into Bank Rs. 2,86,000

Cash withdrawn from Bank Rs. 48,000

(v) Gross profit as per last year’s audited accounts was Rs. 1,20,000.

(vi) Provide depreciation on Building and Furniture @ 5% and Motor Car @ 20%.

(vii) The amount defaulcated by the cashier may be treated as recoverable from him.

You are required to prepare the Trading and Profit and Loss Account for the year ended 31st March,

2010 and the Balance Sheet as on date.

Q.No.12: Kapil, who is in business as a wholesaler in sunflower oil, is a client of your accounting

firm. You are required to draw up his final accounts for the year ended 31.3.2011. From the files, you

pick up his Balance Sheet as at 31.3.2010 reading as below:

Balance Sheet as at 31.3.2010

Rs. Rs.

Liabilities

Kapil’s Capital

Creditors for Oil Purchases

12% Security Deposit from Customers

Creditors for Expenses:

Rent

Salaries

Commission

1,50,000

2,00,000

50,000

6,000

4,000

20,000

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Rs. Rs.

Assets

Cash and Bank Balances

Debtors

Stock of Oil (125 tins)

Furniture

Less: Depreciation

Rent Advance

Electricity Deposit

3 – Wheeler Tempo Van

Less: Depreciation

30,000

3,000

40,000

10,000

4,30,000

75,000

1,60,000

1,25,000

27,000

12,000

1,000

30,000

4,30,000

A summary of the rough Cash Book of Kapil for the year ended 31.3.2011 is as below:

Cash and Bank Summary

Receipts Rs.

Cash Sales 5,26,500

Collections from Debtors 26,73,500

Payments

Landlord 79,000

Salaries 48,000

Miscellaneous Office Expenses 12,000

Commission 20,000

Personal Income-tax 50,000

Transfer on 1.10.2010 to 12% Fixed Deposit 6,00,000

Creditors for Oil Supplies 24,00,000

A scrutiny of the other records gives you the following information:

i) During the year oil was purchased at 250 tins per month basis at a unit cost of Rs. 1,000. 5 tins

were damaged in transit in respect of which insurance claim has been preferred. The surveyors

have since approved the claim at 80%. The damaged once were sold for Rs. 1,500, which is included in the cash sales. One tin has been used up for personal consumption. Total number of

tins sold during the year was 3,000 at a unit price of Rs. 1,750.

ii) Rent until 30.9.2010 was Rs. 6,000 per month and was increased thereafter by Rs. 1,000 per

month. Additional advance rent of Rs. 2,000 was paid and this is included in the figure of payments to landlord.

iii) Provide depreciation at 10% and 25% of WDV on furniture and tempo van respectively.

iv) It is further noticed that a customer has paid Rs. 10,000 on 31.3.2011 as security deposit by cash. One of the staff has defalcated. The claim against the Insurance Company is pending.

You are requested to prepare final accounts for the year ended 31.3.2011.

Q.No.13: The following is the Balance Sheet of Sanjay, a small trader as on 31.3.2010 :

(Figures in Rs. ‘000)


Capital

Creditors

200

50

Fixed Assets

Stock

Debtors

Cash on Hand

Cash at Bank

145

40

50

5

10

250 250

A fire destroyed the accounting records as well as the closing cash of the trader on 31.3.2011.

However, the following information was available: a) Debtors and creditors on 31.3.2011 showed an increase of 20% as compared to 31.3.2010.

13

b) Credit Period : Debtors - 1 month Creditors - 2 months

c) Stock was maintained at the same level throughout the year. d) Cash sales constituted 20% of total sales.

e) All purchases were for credit only. f) Current ratio as on 31.3.2011 was exactly 2.

g) Total expenses excluding depreciation for the year amounted to Rs. 2,50,000.

h) Depreciation was provided at 10% on the closing value of fixed assets. i) Bank and cash transactions:

1) Payments to creditors included Rs. 50,000 by cash. 2) Receipts from debtors included Rs. 5,90,000 by ways of cheques.

3) Cash deposited into the bank Rs. 1,20,000. 4) Personal drawings from bank Rs. 50,000.

5) Fixed assets purchased and paid by cheques Rs. 2,25,000.

You are required to prepare : a) The Trading and Profit & Loss Account of Sanjay for the year ended 31.3.2011 and

b) A Balance Sheet on that date. For your exercise, assume cash destroyed by fire is written off in the Profit & Loss Account.

14

Chapter-6: Not For Profit Orgnisation

Q.No.1: On 31st March, 2010 Writers Club a cultural association had the following assets and liabilities:


Trust fund 5,00,000 Cash 3,000

Accumulated surplus in Canara Bank:

income & expenditure a/c 1,05,000 Savings a/c 7,000

Membership fee received in Fixed deposits 2,00,000

advance for 2010-2011 10,000 Investments in:

Outstanding expenses 10,000 Government securities 3,00,000

Fixed assets 95,000

Membership fee receivable 15,000

Prepaid expenses 5,000

6,25,000 6,25,000

The following is the receipt and payment account for the year ended 31st March, 2011:

Receipts Rs. Payment Rs.

Opening balance: Administrative expenses 1,25,000

Cash

Savings with Canara Bank

3,000

7,000

10,000

Programme expenses including

cost of printing souvenir 2,75,000

Membership fee received Fixed deposits with Canara

Bank 1,25,000

Up to 31/3/2010 14,000 Fixed assets purchased 80,000

For 2010-2011 1,50,000 Investments in ICICI Bond 3,00,000

For 2011-2012 16,000 1,80,000 Closing balance:

Sale of tickets - Programme 25,000 Cash 2,700

Advertisements in programme

souvenir

5,00,000

Savings with Canara Bank 5,000 7,700

Fixed deposits with Canara Bank

75,000

Interest on bank a/c:

Savings 700

Fixed deposit 22,000 22,700

Amount received on maturity

of government security

inclusive of interest Rs. 8,000 (cost Rs. 80,000)

1,00,000

9,12,700 9,12,700

The club informs you that:

(i) Membership fee for 2010-2011 due is Rs. 25,000; it includes Rs. 1,000 due from the member

who has not yet paid also for 2009-10; provision for irrecoverable membership is to be made in

respect of this member.

(ii) Income receivable on 31-3-2011 on ICICI bond is Rs. 30,000 and on government securities is

Rs. 24,000.

(iii) Prepaid expenses on 31-3-2011 amount to Rs. 7,000.

(iv) Outstanding expenses on 31-3-2011 amount to Rs. 8,000.

(v) Depreciation provision is to be Rs. 12,500.

(vi) Programme is an annual feature.

The club asks you to prepare: (a) Income and expenditure account for the year ended 31st March, 2011. (b) Balance sheet as at 31st March, 2011.

Q.No.2: (IPCC-Gr.-I-May10) On the basis of the following information, prepare Income and

Expenditure Account for the year ended 31st March, 2010:

15

Receipts Rs. Payments Rs.

To Cash in hand (opening)

To Cash at Bank (opening)

To Subscriptions

To Interest on 8% Govt. Bonds

To Bank Interest

1,300

3,850

4,94,700

4,000

160

By Salaries

By Rent

By Printing & Stationery

By Conveyance

By Scooter purchased

By 8% Govt. Bonds

By Cash in hand (closing)

By Cash at Bank (closing)

2,58,000

71,500

3,870

10,600

50,000

1,00,000

840

9,200

5,04,010 5,04,010

(i) Salaries paid includes Rs. 6,000 paid in advance for April, 2010. Monthly salaries paid were

Rs. 21,000.

(ii) Outstanding rent on 31st March, 2009 and 31st March, 2010 amounted to Rs. 5,500 and Rs.

6,000 respectively.

(iii) Stock of printing and stationery material on 31st March, 2009 was Rs. 340; it was Rs. 365 on

31st March, 2010.

(iv) Scooter was purchased on 1st October, 2009. Depreciation @20% per annum is to be

provided on it.

(v) Investments were made on 1st April, 2009.

(vi) Subscriptions due but not received on 31st March, 2009 and 31st March, 2010 totalled Rs.

14,000 and Rs. 12,800 respectively. On 31st March, 2010 subscriptions amounting to Rs. 700

had been received in advance for April, 2010.

Q.No.3: (IPCC-Gr.-I-May 11) The following is the Receipt and Payment Account of Park View

Club in respect of the year ended 31st March, 2011:


To Balance b/d

To subscriptions:

2009-10 4,500

2010-11 2,11,000

2011-12 7,500

To Profit on sports meet

To Income from investments

1,02,500

2,23,000

1,55,000

1,00,000

By Salaries

By Stationery

By Rent

By Telephone Exp.

By Investment

By Sundry Expenses

By Balance c/d

2,08,000

40,000

60,000

10,000

1,25,000

92,500

45,000

5,80,500 5,80,500


(i) There are 450 members each paying an annual subscription of Rs. 500. On 1st April, 2010,

outstanding subscription was Rs. 5,000.

(ii) There was an outstanding telephone bill for Rs. 3,500 on 31st March, 2011.

(iii) Outstanding sundry expenses as on 31st March, 2010 totaled Rs. 7,000.

(iv) Stock of stationery:

On 31st March, 2010 Rs. 5,000

On 31st March, 2011 Rs. 9,000

(v) On 31st March, 2010 building stood in the books at Rs. 10,00,000 and it was subject to

depreciation @5% per annum.

(vi) Investment on 31st March, 2010 stood at Rs. 20,00,000.

16

(vii) On 31st March, 2011, income accrued on the investments purchased during the year

amounted to Rs. 3,750.

Prepare an Income and Expenditure Account for the year ended 31st March, 2011 and the

Balance Sheet as at that date.

Q.No.4: Prepare Income and Expenditure Account and Balance Sheet of CAPS College

Sports Club, Nagpur from the following information:

Receipts and Payments Account of CAPS College Sports Club, Nagpur

for the year ended on 31st March, 2011

Dr. Cr.


To Balance b/d : Cash 500 By Rent 9,750

Bank 4,000 By Miscellaneous Expenses 28,800

Stamps 300 By Postage Expenses 1,200

To Subscription By Furniture 8,000

2009-2010 4,650 By Creditors for sports Material 12,200

2010-2011 67,200 By Cost of prizes (to be awarded) 4,150

2011-2012 2,600 74,450 By Match Expenses 7,030

To Sale of old Sports

Materials

5,200 By Cash purchase of Sports

Materials

2,000

To Entrance Fees 8,000 By Balance c/d;

To General Donations 4,050 Cash 545

To Donations for Prize Fund 2,800 Bank 26,000

To Miscellaneous Receipts 225 Stamps 150

To Interest on Prize Fund

Investment

300

99,825 99,825

Information:

Particulars 1.4.2010 (Rs.)

31.3.2011 (Rs.)

Sports Materials 4,000 5,000

Furniture 40,000 ?

5% Prize Fund Investment (Face Value Rs. 12,000)

11,700 ?

Creditors for Sports Material 1,400 2,950

Subscription in arrears 4,750 ?

Subscription in advance 1,400 ?

Prize Fund 12,000 ?

Rent paid in advance - 750

Outstanding Rent 750 -

Outstanding Miscellaneous Expenses 2,280 4,020

Miscellaneous Expenses paid in advance 750 850

Book Value of Sports Materials sold was Rs. 4,000. Depreciation on furniture is to be provided @

10%. Half of entrance fees to be capitalised. There are 720 members, each paying an annual

subscription of Rs. 100.

Q.No.5: (PCC-Nov. 10) Income and Expenditure Account for the year ended 31st March, 2010 of

South Asia club is given below:

17

Expenditure Amount

Rs.

Income Amount

Rs.

To Salaries & Wages

To Misc. Expenses

To Audit fees

To Executive’s Honorarium

To Sports day exp.

To Printing & Stationery

To Interest on Bank loan

To Depreciation on sports equipment

To Excess of income over expenditure

47,500

5,000

2,500

10,000

5,000

4,500

1,500

3,000

6,000

By Subscription

By Entrance fees

By Contribution for Annual

Day (After deducting

expenses Rs. 7,500)

75,000

2,500

7,500

85,000 85,000

Following additional information are also available:

31-3-2009

Rs.

31-3-2010

Rs.

(1) Subscription received in advance

(2) Subscription outstanding

(3) Salaries outstanding

(4) Sports equipment (After deducting depreciation)

(5) Cash in hand on 31-3-10 was Rs. 16,000

4,500

6,000

4,000

26,000

2,700

7,500

4,500

27,000

(6) The club took a 5% loan of Rs. 30,000 from a bank during 2008-09 for which interest was

not paid in F.Y. 2009-10.

Prepare Receipts and Payments A/c of South Asia Club for the year ending 31.3.2010.

Q.No.6: Following is the Income and Expenditure Account of the Gondwana Club for the year ended

on 30.6.2011:

Expenditure Rs. Income Rs.

To Salaries 15,750 By Subscriptions 45,000

To Stationery 1,250 By Donations 7,500

To Postage 800 By Sale of furniture(profit) 1,000

To Sundry expenses 4,700 By Govt. grant 4,000

To Repairs & maintenance 3,600 By Interest on fixed deposit 800

To Sports expenses 1,800

To Swimming pool expenses 2,000

To Affiliation fee 500

To Electricity 3,250

To Billiards room expenses 1,250

To Periodicals 1,200

To Audit fees 250

To Depreciation on Sports Equip. 1,000

To Depreciation on building 2,500

To Depreciation on furniture 450

To Surplus 18,000

58,300 58,300

The above account is prepared after considering the information mentioned below:

01.07.10 30.06.11

18

Building 1,00,000 97,500

Sports ground 1,00,000 1,00,000

Sports equipment 6,000 9,000

Furniture 5,000 -

Fixed Deposits in bank 8,000 8,000

Bank A/c - Saving deposit - 25,000

Subscriptions outstanding 5,000 2,000

Subscriptions received in advance 3,000 1,000

Stock of stationery 250 500

Audit fees outstanding 200 250

Salaries outstanding 500 1,000

Affiliation fee paid in advance - 250

Cash in hand on 1.7.10 was Rs. 1,250. New furniture of Rs. 9,000 has been purchased on credit

but not entered in books. Depreciation has been charged on this furniture at 5%.You are required

to prepare: (a) Receipts and Payments Account for the year ended on 30.6.11; (b) Balance Sheet

as on 30.6.11.

Q.No.7: The following is the Income & Expenditure Account of the Red Roses Club for the year

ended 31st March, 2011:


To Salaries a/c 24,000 By Subscriptions a/c 72,000

To Rent a/c 10,800 By Entrance Fees a/c 8,000

To Rates & Taxes a/c 600 By Surplus on Publication of brochure 4,500

To Postage’s & Telephone a/c 720

To Affiliation fees to the All India By Profit on sale of old sundry assets 1,200

Lawn Tennis Association a/c 1,200

To Tennis Court maintenance a/c 9,600 By Interest on 5% Investment a/c 600

To Depreciation on Assets at 10% of

book value at end of year a/c 4,800 By Miscellaneous Income a/c 225

To Sports material a/c 15,750

To Electricity charges a/c 1,200

To Surplus carried to Capital Fund 17,855

86,525 86,525

The following further information is made available:

Balances on 31-3-2010 (Rs.) Balances on 31-3-2011 (Rs.)

i. Sundry Assets 44,000 ?

Bank Balance 4,800 ?

Subscriptions in arrears 4,750 3,500

5% Investments 12,000 12,000

Subscriptions received in advance 1,400 2,600

ii. Expenses outstanding:

Salaries 600 1,200

Rent 900 1,800

Rates & Taxes NIL 600

Tennis Court maintenance 780 320

iii. Outstanding for purchase of sports materials 1,400 2,950

iv. Prize Fund 4,600 3,250

v. The book value as on 1-4-2010, of sundry assets sold in the year was Rs.4,000/-.

19

vi. Prize fund is separately maintained all receipts being credited to it separately and

expenditure met out of the fund directly. During the year credits to the account amounted

to Rs.2,800.

vii. Interest received this year was only for two quarters.

viii. The club was admitted as a member of the All India Lawn Tennis Federation on 1-10-2010

when it paid subscription current till 30-9-2011.

ix. Advertisement charges in brochure yet to be collected Rs.450.

x. A fixed deposit of Rs.25,000 was made on 31-3-2011.

You are required to prepare the Receipts & Payments Account for the year ended 31st March, 2011

and the Balance Sheet as on that date of the Red Roses Club.

Q.No.8: Summary of Receipts and payments of Bombay Medical Aid Society for the year ended

31.12.2010 are as follows:

Opening Cash balance in hand Rs.8,000, Subscription Rs. 50,000, Donation Rs. 15,000, Interest on

Investments @ 9% p.a. Rs.9,000, Payments for medicine supply Rs.30,000, Honorarium to Doctors

Rs.10,000, Salaries Rs. 28,000, Sundry Expenses Rs. 1,000, Equipment purchase Rs. 15,000, Charity

show expenses Rs. 1,500, Charity show collections Rs. 12,500.

Additional informations:

1.1.2010 31.12.2010

Subscription due 1,500 2,200

Subscription received in advance 1,200 700

Stock of medicine 10,000 15,000

Amount due for medicine supply 9,000 13,000

Value of equipment 21,000 30,000

Value of building 50,000 48,000

You are required to prepare Receipts and Payments Account and Income and Expenditure Account for

the year ended 31.12.2010 and Balance Sheet as on 31.12.2010.

Q.No.9: Following are the details furnished by Maharajabag Club. You are required to prepare

Balance sheet as at 31.3.2010 & 31.3.2011:

Receipts and Payments Account for the year ended 31.3.2011


Opening Balance: Cash 3400 Salary 12,100

Bank 12,400 Insurance 3,150

Entrance fees 14,500 Postage 2,550

Subscription received: Furniture purchased (30.9.2010) 5,300

Year 2009-2010 3,200 Printing and stationery 6,750

Year 2010-2011 44,500 Sundry expenses 4,500

Sale of old newspaper 1,100 Members meeting expenses 25,100

Lecturer meet fees 3,800 Closing balance:

Sale of old furniture (1.10.2010) 5,650 Cash 13,500

Bank 15,600

88,550 88,550

Income and Expenditure Account for the year ended 31.3.2011


To Salaries 12,100 By Entrance fees 14,500

To Insurance 3,150 By Subscription: Received 44,500

To Postage 2,550 Add: Outstanding 5,500 50,000 To Printing and Stationery 6,750 By Lecture Meet Fees: Received 3,800

To Sundry expenses 4,500 Add: Outstanding 1,200 5,000 To Members Meeting Exp. 25,100 By sale of Newspaper 1,100

To Depreciation (charged on By Profit on sale of furniture 900

20


timebasis)

Furniture @10% Machinery @20%

Building @10%

515 2,000

10,000

To Excess of income over expend. 4,835

71,500 71,500

Details (As on) 31.3.2010 31.3.2011

(i) Subscription due and outstanding 4,000 ?

(ii) Club Building 1,00,000 90,000

Q.No.10: The Chief Accountant of Best Club Ltd.' suddenly expired on December 31, 2010 and

the following information was available on that date:

(a) The books of account were maintained inproperly and the last Balance Sheet as at December

31, 2009, showed the following:

Assets: Rs. Rs.

Furniture and Fixtures 76,570

Less: Depreciation to date 36,570 40,000

Bar Stock 26,560

Members Subscription due 720

Bank Balance 96,820

Cash on hand 1,900 1,26,000

1,66,000

Liabilities:

General Fund 1,52,540

Creditors for Bar Purchases 13,100

Members Subscription in Advance 360

1,66,000

(b) Members of the club paid an annual subscription of Rs.60. Duplicate receipts issued showed that as at Dec. 31, 2010, 540 members had paid the current years subscription, 10 members paid

arrears of previous year and 5 members paid advance for 2011. 2 members resigned without paying their arrears of previous year and as at the end of the year, there were 550 members as per

records.

(c) The Cash Book was not written up-to-date and the records showed that the following bills were

paid:

Rs.

Food for Bar 33,280

Sundry Expenses 5,440

Repairs & Maintenance 2,400

Salaries 36,690

Stationery 2,290

(d) The club's main source of income was from bar sales (including food sales) and the bartender generally hands over daily cash collections to the accountant along with collection

list. On cash enquiry, it was found that certain cash collection lists were misplaced or lost. The

bartender stated that the average gross profit on bar sales were 50% of sales. Bar Stock as on Dec. 31, 2010 were Rs.30,260 and cash on hand Rs.125 with Bartender.

21

(e) Bank Statement were summarised and showed the following:

Rs. Rs.

Balance on 1-1-2010 96,820 Bar Purchases 2,39,040

Cash Deposits 3,92,310 Salaries 1,19,450

Rent 2,420

Power 12,570

Telephone 910

Repairs and Renewals 8,510

Washing Machine 5,940

Balance on 31-12-2010 1,00,290

4,89,130 4,89,130

(f) The accounts records were searched and following unpaid bills were located:

Rs.

Bar Purchases 62,540

Power 1,830

Stationery 2,170

Telephone 460

From the above inadequate data, you are required to prepare:

(1) Income and Expenditure Account for the year ended Dec.31, 2010.

(2) Balance Sheet as at that date after providing depreciation at 20% on written down value of

Fixed Assets.

Q.No.11: (IPCC-Gr.-I-Nov. 10) The Young Trust runs a Charitable Hospital and a Dispensary.

The following information is available for the year ended 31st March, 2009 from the books of

accounts:

Dr.

Rs.

Cr.

Rs.

Capital Fund

Donations received during the year

Recovery of the Rent

Fees received from patients

Recovery of Food Supplies

Surgical Equipments

Building & Operation Theatres

Consumption in the Hospital of:

Medicines

Food Stuff

Chemicals

Closing Stock of Hospital

Medicines

Food Stuff

Chemicals

Sales of Medicines (Dispensary)

Opening Stock of Medicines (Dispensary)

Purchase of Medicines (Dispensary)

Salaries:

Administrative Staff

4,55,000

3,20,000

1,20,000

90,000

30,000

20,000

4,000

1,000

55,000

3,00,000

30,000

9,00,000

6,00,000

2,75,000

3,00,000

1,40,000

3,10,000

22

Doctors/Nurses

Assistant at the Dispensary

Electricity & Power Charges:

Hospital

Dispensary

Furniture & Equipments

Ambulance

Postage & Telephone Expenses less recovery

Subscription to Medical Journals

Ambulance Maintenance Charges less recovery

Consumption of Bed Sheets

Fixed Deposits made on 01-04-2008 for three years at interest

@ 11% p.a.

Cash & Bank Balances

Sundry Debtors (Dispensary)

Sundry Creditors (Dispensary)

Remuneration to Trustees, Trust Office Expenses etc.

1,50,000

15,000

1,05,000

2,000

80,000

30,000

26,000

21,000

90,000

5,00,000

41,300

60,500

21,000

800

41,000

25,66,800 25,66,800

Additional Information:

(a) The dispensary supplied medicines to the hospital worth Rs. 60,000, for which no adjustment was made in the books.

(b) The closing stock of the medicines was Rs. 40,000 at the dispensary.

(c) The stock of medicines on 31st March, 2009 at the hospital included Rs. 4,000 worth of medicines belonging to the patients, which has not been considered while arriving at the

figure of consumption of medicines.

(d) The donations were received towards Corpus of the Trust.

(e) On 15th August, 2008, surgical equipments were donated having market value of Rs. 40,000.

(f) The hospital is to receive the grant of 25% of the amount spent on treatment of the poor patients from the Red Cross Society. Such expenditure was Rs. 50,000.

(g) Out of the fees recovered from the patients, 10% is to be given to the Specialist retained by the Hospital.

(h) Depreciation on the assets on the closing balances:

Surgical Equipments @ 20%

Building @ 5%

Furniture & Equipments @ 10%

Ambulance @ 30%

You are required to prepare:

(i) Income and Expenditure Account of the Hospital, Dispensary and Trust.

(ii) Statement of Affairs of the Trust for the year ended 31st March, 2009.

Q.No.12: From the following balances and particulars of Republic College prepare Income &

Expenditure Account for the year ended March 2011 and a Balance Sheet as on the date:

Seminars & Conference Receipts 4,80,000

Consultancy Receipts 1,28,000

Security Deposit-Students 1,50,000

Capital fund 16,06,000

Research Fund 8,00,000

Building Fund 25,00,000

Provident Fund 5,10,000

Tuition Fees received 8,00,000

23

Government Grants 5,00,000

Donations 50,000

Interest & Dividends on Investments 1,85,000

Hostel Room Rent 1,75,000

Mess Receipts (Net) 2,00,000

College Stores-Sales 7,50,000

Outstanding Expenses 2,25,000

Stock of-Stores and Supplies 3,00,000

Purchases-stores and Supplies 8,00,000

Salaries-Teaching 8,50,000

Research 1,20,000

Scholarships 80,000

Students Welfare Exp. 38,000

Repairs & Maintenance 1,12,000

Games & Sports Exp. 50,000

Misc. Exp. 65,000

Research Fund Investments 8,00,000

Other Investments 18,50,000

Provident Fund Investments 5,10,000

Seminar & Conference Exp. 4,50,000

Consultancy Exp. 28,000

Land 1,00,000

Building 16,00,000

Plant & Machinery 8,50,000

Furniture & fitting 6,00,000

Motor Vehicle 1,80,000

Provision for Depreciation

Building 4,80,000

Plant & Equipment 5,10,000

Furniture & Fittings 3,36,000

Cash at Bank 6,42,000

Library 3,60,000

1,03,85,000 1,03,85,000

Adjustments:

1) Materials & supplies consumed for:

Teaching 50,000, Research 1,50,000 Students Welfare 75,000 Games or Sports 25,000

2) Tuition fee receivable from Government for Backward Class Scholars 80,000

3) Stores selling prices are fixed to give a net profit of 10% on selling price.

4) Depreciation is provided on straight-line basis at the following rates:

i) Buildings 5% ii) Plant & Equipment 10% iii) Furniture & Fixtures 10% iv) Motor Vehicles 20%.

24

Chapter-7: Insurance Claim

STOCK POLICY

Q.No.1: (IPCC-Gr.-I-May 10) In January, 2010 a firm took an insurance policy for Rs. 60 lakhs to

insure goods in its godown against fire subject to average clause. On 7th March, 2010 a fire broke out

destroying goods costing Rs. 44 lakhs. Stock in the godown was estimated at Rs. 80 lakhs. Compute

the amount of insurance claim.

Q.No.2: A fire occurred in the premises of Amogh on 25th August, 2010 when a large part of the

stock was destroyed. Salvage was Rs. 15,000. Amogh gives you the following information for the

period January 1st, 2010 to August 25th, 2010:

(a) Purchases Rs.95,000.

(b) Sales Rs. 1,05,000.

(c) Goods costing Rs. 15,000 were taken by Amogh for personal use.

(d) Cost price of stock on January 1st, 2010 was Rs. 50,000.

Over the past few years, Amogh has been selling goods at a consistent gross profit margin of

33&1/3%.

Amogh asks you to prepare a statement of claim to be made on the insurance company.

Q.No.3: On 1st April, 2010, a trader took out a fire policy containing an average clause covering his

stock for Rs. 15,00,000. His practice was to place his selling price at cost plus 33 1/3%. He closes his

books on 31st March, every year.

On 31st December, 2010, a fire broke out at the premises and destroyed his stock. The value of

salvaged stock was Rs. 6,00,000. During the period of 9 months preceding the fire, his purchases

amounted to Rs. 61,00,000 and sales to Rs. 84,00,000. His stock on 1st April, 2010 was valued at Rs.

20,00,000.

Prepare a statement showing the amount of claim.

Q.No.4: On 1st July 2011, a fire took place in the godown of Ram Kumar which destroyed all Stocks.

Calculate the amount of insurance claim for the stock from the following details:

Rs.

Sales in 2009 2,00,000

Gross profit in 2009 60,000

Sales in 2010 3,00,000

Gross profit 2010 60,000

Stock as on 1-1-2011 2,70,000

Purchases from 1-1-2011 to 30-6-2011 4,00,000

Sales from 1-1-2011 to 30-6-2011 7,20,000

The following are also to be taken in to consideration:

1. Stock as on 31st Dec. 2010 had been undervalued by 10%

2. Stock taking conducted in March 2011 had revealed that stocks costing Rs.80,000 were lying in a damage condition. 50% of these stocks had been sold in May 2011 at 50% of cost and the

balance were expected to be sold at 40% of cost.

3. Amount of policy Rs. 1,50,000.

Q.No.5: (PCC-Nov. 10) On 20th October, 2009, the godown and business premises of Aman Ltd.

were affected by fire. From the salvaged accounting records, the following information is available.

25

Rs.

Stock of goods @ 10% lower than cost as on 31st March, 09

Purchases less returns (1.4.09 to 20.10.09)

Sales less returns (1.4.09 to 20.10.09)

2,16,000

2,80,000

6,20,000


(1) Sales upto 20th October, 09 includes Rs. 80,000 for which goods had not been

dispatched.

(2) Purchases upto 20th October, 09 did not include Rs. 40,000 for which purchase invoices

had not been received from suppliers, though goods have been received in Godown.

(3) Past records show the GP rate 25%.

(4) The value of goods salvaged from fire Rs. 31,000.

(5) Aman Ltd. has insured their stock for Rs. 1,00,000.

Compute the amount of claim to be lodged to the insurance company.

Q.No.6: (IPCC-Gr.-I-May 11) On 30th March, 2011 fire occurred in the premises of M/s Suraj

Brothers. The concern had taken an insurance policy of Rs. 60,000 which was subject to the average

clause. From the books of accounts, the following particulars are available relating to the period 1st

January to 30th March, 2011.

(a) Stock as per Balance Sheet at 31st December, 2010, Rs. 95,600.

(b) Purchases (including purchase of machinery costing Rs. 30,000) Rs. 1.70.000.

(c) Wages (including wages Rs. 3,000 for installation of machinery) Rs. 50,000.

(d) Sales (including goods sold on approval basis amounting to Rs. 49,500) Rs. 2,75,000.

No approval has been received in respect of 2/3rd of the goods sold on approval.

(e) The average rate of gross profit is 20% of sales.

(f) The value of the salvaged goods was Rs. 12,300.

You are required to compute the amount of the claim to be lodged to the insurance company.

PROFIT POLICY

Q.No.7: From the following information, compute a consequential loss claim.

Financial year ending on 31st Dec: Turnover Rs. 2,00,000.

Indemnity Peroid: 6 Months.

Period of interruption: 1st July to 31st October.

Net Profit: Rs. 18,000

Standing charges: Rs. 42,000 out of which Rs. 10,000 have not been insured.

Sum assured: Rs. 50,000.

Standard Turnover: Rs. 65,000.

Turnover in the period of interruption: Rs. 25,000 out of which Rs. 6,000 was from a Rented place at

Rs. 600 per month.

Annual Turnover: Rs. 2,40,000.

Savings in Insured Standing Charges: Rs. 4,725 per annum.

Date of fire night of 30th June.

It was agreed in between the Insurer and the Insured that the business trends would lead to an

increase of 10% in the turnover.

Q.No.8: The premises of XY Limited were partially destroyed by fire on 1st March, 2011 and as result

, the business was practically disorganized upto 31st August, 2011. The company is insured under a

loss of profits policy for Rs. 1,65,000 having an indemnity period of 6 months.

26

From the following information, prepare a claim under the policy:

Rs.

(i) Actual turnover during the period of dislocation (1.3.2011 to 31.8.2011) 80,000

(ii) Turnover for the corresponding period (dislocation) in the 12 months immediately

before the fire (1.3.10 to 31.8.10)

2,40,000

(iii) Turnover for the 12 months immediately preceding the fire (1.3.10 to 28.2.11) 6,00,000

(iv) Net profit for the last financial year 90,000

(v) Insured standing charges for the last financial year 60,000

(vi) Uninsured standing charges 5,000

(vii) Turnover for the last financial year 5,00,000

Due to substantial increase in trade, before and up to the time of the fire, it was agreed that an

adjustment of 10% should be made in respect of the upward trend in turnover. The company

incurred additional expenses amounting to Rs. 9,300 immediately after the fire and but for this

expenditure, the turnover during the period of dislocation would have been only Rs. 55,000. There

was also a saving during the indemnity period, of Rs. 2,700 in insured standing charge as a result of

the fire.

Q.No.9: The premises of a Company were partly destroyed by fires which took place on Ist March

2011 and as a result of which the business was dis-organised from 1st March to 31st July, 2011.

Accounts are closed on 31st December, every year. The company is insured under a Loss of Profits

Policy for Rs. 7,50,000. The period of indemnity specified in the Policy is 6 months. From the

following information you are required to compute the amount of claim under the Loss of Profits

Policy:

(Rs.)

Turnover for the year 2010 40,00,000

Net Profits for the year 2010 2,40,000

Insured standing charges 4,80,000

Uninsured standing charges 80,000

Turnover during the period of dislocation i.e. from 1-3-2011 to 31-7-2011 8,00,000

Standard turnover for the corresponding period in the preceding year

i.e. from 1-3-2010 to 31-7-2010 20,00,000

Annual Turn over for the year immediately preceding the fire 44,00,000

i.e. from 1-3-2010 to 29-2-2011

Increased cost of working 1,50,000

Savings in Insured Standing Charges 30,000

Reduction in turnover avoided through increase in working cost 4,00,000

Owing to reasons acceptable to the Insurer, the "Special circumstances clause" stipulates for:

(a) Increase of turnover (Standard and Annual) by 10% and (b) Increase of rate of gross profit by

2%

Q.No.10: (IPCC-Gr.-I-Nov. 10) A trader intends to take a loss of profit policy with indemnity

period of 6 months, however, he could not decide the policy amount. From the following details,

suggest the policy amount:

Rs.

Turnover in last financial year 4,50,000

Standing charges in last financial year 90,000

Net profit earned in last year was 10% of turnover and the same trend expected in subsequent year.

Increase in turnover expected 25%

To achieve additional sales, trader has to incur additional expenditure of Rs. 31,250.

27

STOCK AND PROFIT POLICY

Q.No.11: S & M Ltd. give the following Trading and Profit and Loss Account for the year ended 31st

Dec., 2010:

Particulars Rs. Particulars Rs.

To Opening Stock 50,000 By Sales 8,00,000

To Purchases 3,00,000

To Wages (Rs.20,000 for skilled

labour)

1,60,000 By Closing Stock 70,000

To Manufacturing Expenses 1,20,000

To Gross Profit 2,40,000

8,70,000 8,70,000

To Office Administrative Exp. 60,000 By Gross Profit 2,40,000

To Advertising 20,000

To Selling Expenses (Fixed) 40,000

To Commission on Sales 48,000

To Carriage Outward 16,000

To Net Profit 56,000

2,40,000 2,40,000

The Company had taken out policies both against loss of stock and against loss of profit, the amounts

being Rs.80,000 and Rs.1,72,000. Fire occurred on 1st May, 2011and as a result of which sales were

seriously affected for the period of 4 months.

You are given the following further information:

(a) Purchases, wages and other manufacturing expenses for the first 4 months of 2011 were Rs.

1,00,000 Rs. 50,000 and Rs. 36,000 respectively.

(b) Sales for the same period were Rs.2,40,000.

(c) Other sales figures were as follows: Rs.

From 1st January, 2010 to 30th April, 2010 3,00,000

From 1st May, 2010 to 31st August, 2010 3,60,000

From 1st May, 2011 to 31st August, 2011 60,000

(d) Due to rise in wages, net profit during 2011 was expected to decline by 2% on sales.

(e) Additional expenses incurred during the period after fire amounted to Rs. 14,000. The amount of the policy included Rs. 1,20,000 for expenses leaving Rs. 20,000 uncovered.

Ascertain the claim for stock and for loss of profit.

28

Chapter-8: Hire Purchase Accounts

Books of Purchaser

Q.No.1: (IPCC-Gr.-I-May 10) On 1st April, 2009 a car company sold to Arya Bros., a motor car on

hire-purchase basis. The total hire-purchase price was Rs. 4,60,000 with down payment of Rs.

1,60,000. Balance amount was to be paid in three annual instalments of Rs. 1,00,000 each. The first

instalment payable on 31st March, 2010. The cash price of the car was Rs. 4,00,000.

How will Arya Bros. account for interest over three accounting years assuming books of accounts are

closed on 31st March every year.

Q.No.2: (IPCC-Gr.-I-May 10) From the following, calculate the cash price of the asset:

Hire purchase price of the asset

Down payment

Four annual installments at the end of each year

Rate of Interest

Rs.

50,000

10,000

10,000

5% p.a.

Q.No.3: Taking the information of Q.1, and considering SLM Depreciation @20%, show how will

Arya Bros. account for the hire purchase transaction under different method, assuming books of

accounts are closed on 31st March every year.

Q.No.4: Taking the information of Q.2, and considering WDV Depreciation @25%, show how will

Purchaser account for the hire purchase transaction under different method, assuming books of

accounts are closed on 31st March every year and the agreement was entered in to on 1.04.2010 and

installments are payable at the beginning of next year.

Q.No.5: On July 1, 2009 Eastern Printers purchased a printing machine on a hire purchase basis,

payments to be made Rs. 10,000 on the said date and the balance in three half-yearly installments of

Rs. 8,200. Rs. 7,440 and Rs. 6,300 commencing from December 31, 2009. The vendor charged

interest at 10% per annum calculated on half- yearly rests.

Eastern Printers closes books annually on December 31, and provide depreciation at 10% per annum

on diminishing balances in each year. Determine the cash price of the machine and show the

necessary ledger accounts in the books of Eastern Printers.

Q.No.6: X Transport Ltd. purchased from Delhi Motors three tempos costing Rs. 50,000 each on the

hire-purchase system on 1-1-2008. Payment was to be made Rs. 20,000 down and the remainder in

three equal annual installments payable on 31-12-2008, 31-12-2009 and 31-12-2010 together with

interest @ 9%. X Transport Ltd. write off depreciation @ 20% on the diminishing balance. It paid the

installment due at the end of the first year i.e. 31-12-2008 but could not pay the next on 31-12-2009.

Delhi Motors repossessed all the tempos. Show the necessary accounts in the books of X Transport

Ltd. for the years 2008 and 2009.

Q.No.7: Bombay Roadways Ltd. purchased three trucks costing Rs. 1,00,000 each from Hindusthan

Auto Ltd. on 1st January, 2008 on the hire purchase system.

The terms were:

Payment on delivery Rs. 25,000 for each truck and balance of the principal amount by 3 equal

installments plus interest at 15% per annum to be paid at the end of each year.

Bombay Roadways Ltd. writes off 25% depreciation each year on the diminishing balance method.

Bombay Roadways Ltd. paid the installments due on 31st December, 2008 and 31st December, 2009

but could not pay the final installment.

29

Hindusthan Auto Ltd. re-possessed two trucks adjusting values against the amount due. The re-

possession was done on 1st January, 2008 on the basis of 40% depreciation on the diminishing

balance method.

You are required to:

a) Write up the ledger accounts in the books of Bombay Roadways Ltd. showing the above

transactions upto 1.1.2011, and

b) Show the disclosure of the balances arising from the above in the Balance Sheet of Bombay Roadways Ltd. as on 31st December, 2010.

Books of Vendor

Q.No.8: On 1st April, 2009 a ABC car company sold to Arya Bros., a motor car on hire-purchase

basis. The total hire-purchase price was Rs. 4,60,000 with down payment of Rs. 1,60,000. Balance

amount was to be paid in three annual installments of Rs. 1,00,000 each. The first installment

payable on 31st March, 2010. The cash price of the car was Rs. 4,00,000.

Account for the hire purchase transaction in the books of ABC car company, for all the years,

assuming books of accounts are closed on 31st March every year.

Q.No.9: From the following, calculate the cash price of the asset and account for the hire purchase

transaction in the books of Hire Vendor for the year 2007 to 2010:

Hire purchase price of the asset

Down payment

Four annual installments at the end of each year

Rate of Interest

Rs.

50,000

10,000

10,000

5% p.a.

Q.No.10: Y Ltd. sells products on hire purchase terms, the price being cost plus 331/3%.

From the following particulars for 2010, prepare Hire Purchase Stock Account, Shop Stock Account,

Hire purchases Debtors Account, Stock Reserve Account and Hire Purchase Adjustment Account (for

profit).

2010 Rs.

January 1 Stock out on hire at Hire Purchase Price 1,20,000

Stock in hand, at shop 15,000

Installments due (Customers still paying) 9,000

December 31 Stock out on hire at Hire Purchase Price 1,38,000

Stock in hand at the shop 21,000

Installment due (Customers still paying) 15,000

Cash received during the year 2,40,000

Q.No.11: (IPCC-Gr.-I-Nov. 10) Sonam Corporation sells goods on hire purchase basis. The hire

purchase price is cost plus 50%.

From the following particulars prepare Hire Purchase Trading Account for the year ended 31st

March, 2010:

Installments not yet due on 01-04-09

Installments due on 01-04-09

Goods sold on hire purchase during the year

Installments collected from HP debtors

Stock with customers at hire purchase price

Goods re-possessed during the year

On 31-03-2010 Goods repossessed were valued at

3,00,000

1,50,000

9,00,000

6,80,000

4,50,000

60,000

Cost less 40%

30

Q.No.12: (PCC-Nov. 10) From the following information of M/s Chennai Traders, you are required

to prepare Hire Purchase Trading Account to ascertain the profit made during the Financial Year

2009-10.

Chennai Traders sell goods on hire purchase basis at cost plus 25%. The following details are

available:

Rs.

(1) Installment not due on 31st March, 2009

(2) Installment due and collected during the financial year 2009-10

(3) Installment due but not collected during the financial year 2009-

10 which includes Rs. 15,000 for which goods were repossessed

(4) Installment not due on 31st March, 2010 including Rs. 30,000 for

which goods were repossessed.

(5) Installment collected on repossessed stock

(6) M/s Chennai Traders valued repossessed stock at 60% of original

cost.

4,50,000

12,00,000

75,000

5,55,000

22,500

Q.No.13: (IPCC-Gr.-I-May10) Easilife Ltd. has a hire-purchase department which fixes hire-

purchase price by adding 40% to the cost of the goods. The following additional information

is provided to you:

On 1st April, 2009:

Goods out on hire-purchase (at hire-purchase price)

Installments due

Transactions during the year:

Hire-purchase price of goods sold

Installments received

Value of goods repossessed due to defaults

(hire-purchase installments unpaid Rs. 5,600)

On 31st March, 2010:

Goods out on hire-purchase (at hire-purchase price)

Rs.

2,10,000

14,000

9,80,000

8,12,000

7,800

3,78,000

You are required to prepare Hire-purchase Trading Account, ascertaining the profit made by

the department during the year ended 31st March, 2010.

Q.No.14: Omega Corporation sells computers on hire purchase basis at cost plus 25%. Terms of

sales are Rs. 10,000 as down payment and 8 monthly installments of Rs. 5,000 for each computer.

From the following particulars prepare Hire Purchase Trading Account for the year 2010.

As on 1st January, 2010, 30 installment were outstanding as these were not due.

During 2010 the firm sold 240 computers.

As on 31st December, 2010 the position of installments outstanding were as under:

Installments due but not collected: 2 installments on 2 computers and last installment on 6

computers.

Installments not yet due: 8 installments on 50 computers, 6 installments on 30 and last installment

on 20 computers.

Two computers on each of which 1 installment were due and 6 installment not yet due on 31.12.2010

had to be repossessed. Repossessed stock is valued at 50% of cost. All other installments have been

received.

31

Q.No.15: Majestic & co. commenced business on January 1, 2010 dealing in radio sets and record

players. They sell goods both directly as well as on hire purchase. You are furnished with the

following information for the year ended 31st December 2010:

Radio Sets Record Players

Purchases No. 1,000 100

Sales: Direct for cash No. 800 50

On hire-purchase No. 40 20

To employees as explained below No. 3 2

Purchase cost per unit Rs. Rs. 400 Rs. 1,200

Direct sales price per unit Rs. Rs. 500 Rs. 1,500

Terms of hire-purchase sale:

Cash down at the time of delivery Rs. Rs. 100 Rs. 300

Monthly installments Rs. Rs. 50 Rs. 150

Number of installments No. 10 12

Installment collected No. 260 110

Installments due but not collected No. 15 10

During the year the firm re-possessed 3 radio sets and 2 record players for failure to pay installment.

The hire-purchase customers had paid only 4 installments, each in respect of these radio sets and

record players. At the time of repossession, the radio sets were valued at Rs. 200 each and the record players were valued at Rs.500 each. The firm spent Rs. 30 per radio set and Rs. 70 per record

player on reconditioning. These sets were sold to employees at a concessional rate of Rs. 300 per radio set and Rs. 700 per record player and the amount was recovered from their salaries before the

close of the year.

Prepare columnar accounts to show the ‘earnings' during the year.

Q.No.16: Krishna Agencies started business on 1st April, 2010. During the year ended 31st March,

2011, they sold under mentioned durable under two schemes - Cash Price Scheme (CPS) and Hire-

purchase scheme (HPS).

Under the CPS they priced the goods at cost plus 25% and collected it on delivery. Under the HPS the

buyers were required to sign a Hire-purchase Agreement undertaking to pay for the value of the

goods including finance charges in 30 installments, the value being calculated at Cash price plus 50%.

The following are the details available at the end of 31st March, 2011 with regard to the products:

Product Nos.

purchase

d

Nos.

sold

under

CPS

Nos.

sold

under

HPS

Cost

per unit

Rs.

No. of

installments

due during the

year

No. of

installments

received during

the year

TV sets 90 20 60 16,000 1,080 1,000

Washing Machines 70 20 40 12,000 840 800

The administrative and selling expenses during the year were: Rs.3,80,000

From the above information, you are required to prepare:

(a) Hire-purchase Trading Account, and (b) Trading and Profit & Loss Account.

32

Chapter-9: Partnership- Change in Constitution

Ratios

Q.No.1: (IPCC-Gr.-I-May 10) In the absence of a partnership deed, what will be your decision in

disputes amongst partners regarding the following matters:

(a) Profit sharing ratio;

(b) Interest rate at which interest is to be allowed to a partner on loan given to the firm by

a partner.

Q.No.2: (i) (IPCC-Gr.-I-Nov. 10) Following problem regarding issue in Partnership Accounts,

kindly solve:

Anil and Mukesh are partners sharing profit and losses in the ratio of 3 : 2. Govind is admitted for

1/4th share of firm. Thereafter Madan enters for 20 paisa in a rupee. Compute new profit sharing ratios under both the admission of partners.

Q.No.2: (ii) (IPCC-Gr.-I-Nov. 10) Following problem regarding issue in Partnership Accounts,

kindly solve:

The following Goodwill Account was opened by the partners of R and S, on the admission of H as a

new partner into firm Om and Sons. Calculate the share of profit agreed to be given to “H”.

Goodwill A/c

Rs. Rs.

1-4-2010

1-4-2010

To R’s Capital A/c

To S’s Capital A/c

24,800

18,600

1-4-2010

1-4-2010

1-4-2010

By R’s Capital A/c

By S’s Capital A/c

By H’s Capital A/c

12,400

12,400

18,600

43,400 43,400

Goodwill Valuation & Accounting

Q.No.3: (IPCC-Gr.-I-May 10) A and B are partners in a firm sharing profits and losses in the ratio

of 3 : 2. Their capitals are Rs. 60,000 and Rs. 40,000 respectively. They admit C as a new partner

who will get 1/6th share in the profit of the firm. C brings in Rs. 25,000 as his capital. Find out the

amount of goodwill on the basis of the above information.

Q.No.4: (IPCC-Gr.-I-May 11) Shiv and Mohan are partners in a firm sharing profits and losses

equally. On 31st March, 2011, the balances of their capital accounts were Rs. 3,00,000 and Rs.

2,00,000 respectively. The average profits of the firm are Rs. 1,36,000 and the rate of normal profit is

20%.

On 1st April, 2011 they agreed to admit Hari as a partner for one fourth share. Hari will bring Rs.

1,00,000 as capital.

You are required to compute the value of the Goodwill of the firm on admission of Hari, if goodwill is

to be calculated on the basis of:

(1) 5 years purchase of super profit

(2) Capitalisation method

(3) 3 years purchase of average profit

Q.No.5: (IPCC-Gr.-I-May 11) X, Y and Z are partners sharing profits and losses in the ratio of 4 :

3 : 2 respectively. On 31st March, 2011 Y retires and X and Z decide to share profits and losses in the

ratio of 5 : 3. Then immediately, W is admitted for 3/10th shares in profits, 2/3rd of which was given

by X and rest was taken by W from Z. Goodwill of the firm is valued at Rs. 2,16,000. W brings

required amount of goodwill.

33

Give necessary Journal Entries to adjust goodwill on retirement of Y and admission of W if they do

not want to raise goodwill in the books of accounts.

Admission of Partner

Q.No.6: Amit and Sumit are partners sharing profits and losses in the ratio of 3 : 2. Their Balance

Sheet as on 31st March 2011 is given below:

Liabilities Amount Assets Rs.

Capital Accounts:

Amit

Sumit

Loan from Puneet

General Reserve

Employer’s Provident Fund

Creditors

1,76,000

2,54,000

3,00,000

30,000

10,000

50,000

Land & Building

Investments (Market value Rs.

55,000)

Debtors 3,00,000

Less: Provision for

doubtful debts 10,000

Stock

Cash at Bank

3,20,000

50,000

2,90,000

1,10,000

50,000

Total 8,20,000 Total 8,20,000

They decided to admit Puneet as a new partner from 1st April, 2011 on the following terms:

(1) Amit will give 1/3rd of his share and Sumit will give 1/4th of his share to Puneet.

(2) Punnet’s loan account will be converted into his capital.

(3) The Goodwill of the firm is valued at Rs. 3,00,000. Puneet will bring his share of Goodwill in

cash and the same was immediately withdrawn by the partners.

(4) Land and building was found undervalued by Rs. 1,00,000.

(5) Stock was found overvalued by Rs. 60,000.

(6) Provision for doubtful debts will be made equal to 5% of debtors.

(7) Investments are to be valued at their market price.

It was decided that the total capital of the firm after admission of new partner would be Rs.

10,00,000. Capital accounts of partners will be readjusted on the basis of their profit sharing ratio

and excess or deficiency will be adjusted in cash.


(a) Revaluation A/c

(b) Partner’s Capital A/c

(c) Balance Sheet of the firm after admission of new partner.

Q.No.7: A, B and C are partners in a firm of accountants who maintain accounts on the cash basis

sharing profits and losses in the ratio of 2 : 3 : 1. Their Balance sheet as on 31st March 2011 on

which date D is admitted as a partner is as follows:


B's Capital 35,000 Furniture 10,000

C's Capital 22,000 Motor Car 20,000

Cash at Bank 18,000

A's Capital 9,000

57,000 57,000

D is given 1/4th share in the profits and losses in the firm and the profit and loss sharing ratio as

between the other partners remains as before. The following adjustments are to be made prior to D's

admission.

(a) The Motor Car is taken over by B at a value of Rs. 25,000

(b) The furniture is revalued at 18,000.

34

(c) Goodwill account is raised in the books of Rs. 50,000. It is agreed among A, B and C that C is

interested in goodwill only upto a value of Rs. 30,000.

(d) Fees billed but not realised, Rs. 15,000. are brought into account.

(e) Expenses incurred but not paid Rs. 7,000 are provided for.

D brings in Rs. 20,000 in cash as his capital contribution. He is also to be credited with Rs. 20,000 for

having agreed to amalgamate his separate practice as chartered Accountant with this firm.

Prepare Revaluation a/c, Capital a/c and the Balance Sheet of the firm after D's admission.

Retirement of Partner

Q.No.8: On 31st December 2010 the Balance Sheet of M/s. A, B and C, sharing profits and losses in

proportion to their Capitals, stood as follows:


Creditors

Capital Accounts:

A 4,50,000

B 3,00,000

C 1,50,000

1,08,000

9,00,000

Cash at Bank

Debtors 1,00,000

Less: Reserve 2,000

Stock

Machinery

Land & Building

80,000

98,000

90,000

2,40,000

5,00,000

10,08,000 10,08,000

On that date, B wants to retire from the Firm and the remaining partners decide to carry on firm. The

following readjustments of assets and liabilities have been agreed upon before the ascertainment of the amount payable to B:

(i) that out of the amount of Insurance premium which was debited annually entirely to Profit and

Loss Account, Rs. 10,000 be carried forward for unexpired insurance on 31-12-2010;

(ii) that the land and building be appreciated by 10%

(iii) that the Reserve for Doubtful Debts be brought upto 5% on Debtors.

(iv) that machinery be depreciated by 5%.

(v) that a provision for Rs. 15,000 be made in respect of an outstanding bill for repairs. ;

(vi) that the goodwill of the entire firm be fixed at Rs. 1,80,000 and B's Share of the same adjusted in

the account of A and C who share future profits in the Proportion of 3/4th & 1/4th respectively (no goodwill account being raised); and

(vii) that B be paid Rs. 50,000 in cash and the balance be transferred to his loan a/c.

Prepare Revaluation Account, the Capital Accounts of the partners and the Balance Sheet of the firm

of A & C.

Q.No.9: Manish, Jatin and Paresh were partners sharing Profits/Losses in the ratio of Manish 40

percent, Jatin 35 percent, and Paresh 25 percent. The draft Balance Sheet of the partnership as on

31st December, 2010 was as follows:


Sundry Creditors 30,000 Cash on hand and at Bank 67,000

Bills payable 8,000 Stock 42,000

Loan from Jatin 30,000 Sundry Debtors 34,000

Current Accounts: Less: Provisions for

Doubtful Debts

6,000 28,000

Manish 12,000 Plant and Machinery (at

cost)

80,000

Jatin 8,000 Less: Depreciation 28,000 52,000

Paresh 6,000 26,000 Premises(at cost) 75,000

Capital Accounts:

Manish 90,000

Jatin 50,000

35

Paresh 30,000 1,70,000

2,64,000 2,64,000

Jatin retired on 31st December, 2010. Manish and Paresh continued in partnership sharing

Profits/Losses in the ratio of Manish 60 per cent and Paresh 40 per cent. 50 per cent of Jatin’s Loan

was repaid on 1-1-2011 and it was agreed that of the amount then remaining due to him a sum of

Rs. 80,000 should remain as loan to partnership and the balance to be carried forward as ordinary

trading liability. The following adjustments were agreed to be made to the above mentioned Balance

Sheet.:

(I) Rs. 10,000 should be written off from the premises.

(II) Plant and Machinery was revalued at Rs. 58,000.

(III) Provisions for Doubtful debts to be increased by Rs. 1,200.

(IV) Rs. 5,000 due to creditors for expenses had been omitted from the books of account.

(V) Rs. 4,000 to be written off on stocks.

(VI) Provide Rs. 1,200 for professional charges in connection with revaluation.

As per the deed of partnership, in the event of the retirement of a partner, goodwill was to be valued

at an amount equal to one year’s purchase of the average profits of the preceding three years on the

date of retirement. Before determining the said average profits a notional amount of Rs. 80,000

should be charged for remuneration to partners. The necessary profits before charging such

remuneration were:

Year ending 31-12-2008 Rs. 1,44,000

Year ending 31-12-2009 Rs. 1,68,000

Year ending 31-12-2010 Rs. 1,88,200 (as per draft accounts)

It was agreed that, for the purpose of valuing goodwill, the amount of profit for the year 2010 be

recomputed after charging the loss on revaluation in respect of premises and stock, the un-provided expenses (except professional expenses) and increase in the provision for doubtful debts. The

continuing partners decided to eliminate goodwill account from their books.


(I) Revaluation Account;

(II) Capital Accounts (merging current accounts therein);

(III) Jatin’s Account showing balance due to him; and

(IV) Balance Sheet of Manish and Paresh as at 1st January 2011.

Admission cum Retirement of Partner

Q.No.10: Ardeshir, Burjor and Cawasji are Partners of M/s. Evergreen & Co. sharing profits and

losses in the ratio of 3 : 3 : 2. Their Balance Sheet as on 30th September 2011 was as under:

Rs. Rs.

Fixed Assets:

Cost 3,00,000

Less: Depreciation 1,80,000 1,20,000

Investments: Cost (Market value Rs. 2,00,000) 80,000

Working Capital 3,00,000

5,00,000

Financed By:

Loans from Dorab 1,50,000

Engineer 1,00,000 2,50,000

Reserves 1,00,000

Capital : Burjor (Credit) 2,00,000

Cawasji (Credit) 1,00,000

3,00,000

36

Less: Ardeshir (Debit) 1,50,000 1,50,000

5,00,000

On that day Ardeshir retired from business. Burjor and Cawasji decided to admit Dorab as a Partner

and Engineer, who was a minor, to benefits of partnership.

Burjor, Cawasji, Dorab and Engineer are to share profits in the ratio of 3 : 3 : 2 :2. Losses, if any, are

to be borne by Burjor, Cawasji and Dorab in the ratio of 3 :3 : 2.

For the purpose of the above retirement-cum-admission, it is decided that:-

(a) Goodwill of the firm to be valued at Rs. 2,00,000. However, no account is to appear for goodwill. Treatment for goodwill in relation to minor, is to be deferred to the date when he opts to be a

partner on attaining majority, when the value of goodwill will be deemed, for this purpose, to remain unchanged at Rs. 2,00,000.

(b) Ardeshir takes over: Building (Cost Rs., 1,00,000; written down value Rs. 35,000) for Rs. 75,000. Investments (Cost Rs. 10,000) at their market value of Rs. 5,000.

(c) The continuing partners take over the remaining assets at their book values, except investments,

which are taken over at their market values.

(d) Loans are to be transferred to Capital Account.

(e) The amount due to/from Ardeshir is to be settled by Cheque immediately.


(a) The revaluation/adjustment account;

(b) The Capital Accounts; and

(c) The Balance Sheet of the firm after giving effect to all the above point Agreement.

Q.No.11: A and B are equal partners. A, by agreement, retires and C joins the firm on the basis of

the third share of profits on 1-1-2011. The balances of the books as on 31-12-2010 were.

Dr. Cr.

Goodwill

Fixed Assets - at cost

Current Assets:

Stock

Debtors

Bank Balance

Creditors


Capital Accounts:

A

B

10,000

1,20,000

60,000

40,000

8,000

20,000

12,000

1,04,000

1,02,000

2,38,000 2,38,000

Goodwill and Fixed Assets valued at Rs.30,000 and Rs.1,40,000 respectively and it was agreed to be

written up accordingly before admission of C as partner. Sufficient money is to be introduced so as to

enable A to be paid off and leave Rs.5,000 cash at bank; B and C are to provide such sum as to make

their Capitals proportionate to their share of profit. Assuming the agreement was carried out, show

the Journal entries required and prepare the Balance Sheet after admission of C.

37

Death of Partner

Q.No.12: (IPCC-Gr.-I-Nov. 10) Ramu, Shamu and Raju were partners sharing profits and losses

in the ratio of 3 : 2 : 2. Their Balance Sheet as on 01-01-2009 was as follows:


Capital Accounts

Ramu 30,000

Shamu 20,000

Raju 20,000

Reserves

Creditors

70,000

14,000

24,951

Fixed Assets

Stock

Debtors

Cash & Bank

80,000

15,000

12,000

1,951

1,08,951 1,08,951

On 1st October, 2009 Ramu died. His heirs agreed that:

(i) Goodwill of the firm be valued at 2 years’ purchase of average profit of past three years

Profits for the year 2006, 2007 and 2008 were Rs. 30,000, Rs. 40,000 and Rs. 47,600 respectively.

(ii) Fixed Assets be revalued at Rs. 1,01,000.

(iii) Profit to be shared, earned in subsequent period after death of Ramu till settlement of his

executors’ claim.

Ramu’s heirs account was settled on 31-12-2009 by bringing in required cash by remaining

partners in equal proportion leaving cash balance of Rs. 1,234. Each partner had drawn @ Rs.

1,000 per month for personal use.

Profit for the current year after charging depreciation of Rs. 9,000 (Rs. 6,000 for first three

quarters and Rs. 3,000 for last quarter) was Rs. 46,600 earned evenly through-out the year.

You are requested to prepare Profit & Loss Appropriation A/c, Cash & Bank A/c, Ramu’s

Executor’s A/c and partners’ Capital Accounts for the year ended on 31-12-2009 assuming

remaining partners’ decided not to retain goodwill in the books.

Q.No.13: A, B, and C were partners of a firm sharing profits and losses in the ratio of 3:4:3. The

Balance Sheet of the firm, as at 31st March, 2010 was as under:


Capital accounts: Fixed assets 1,00,000

A 48,000

B 64,000

C 48,000

Reserves

Creditors

1,60,000

20,000

40,000

Current Assets:

Stock 30,000

Debtors 60,000

Cash and Bank 30,000

1,20,000

2,20,000 2,20,000

The firm had taken a Joint Life Policy for Rs. 1,00,000; the premium periodically paid was charged to

Profit and Loss Account. Partner C died on 30th September, 2010. It was agreed between the

surviving partners and the legal representatives of C that:

i. Goodwill of the firm will be taken at Rs. 60,000 ii. Fixed assets will be written down by Rs.

20,000

iii. In lieu of Profits, C should be paid at the rate of 25% per annum on his capital as on 31st March,

2010.

Policy money was received and the legal heirs were paid off. The profits for the year ended 31st

March, 2011, after charging depreciation of Rs. 10,000 (depreciation upto 30th September was

agreed to be Rs. 6,000) were Rs. 48,000.

Partners’ Drawings Accounts showed balances as under:

A) Rs. 18,000 (drawn evenly over the year) B) Rs. 24,000 (drawn evenly over the year)

C) (up-to-date of death) Rs. 20,000

38

On the basis of the above figures, please indicate the entitlement of the legal heirs of C, assuming

that they had not been paid anything other than the share in the Joint Life Policy.

Admission of Partner & Direct Sharing of Fees

Q.No.14: (PCC-Nov. 10) P, Q, R are three doctors who are running a Polyclinic. Their capital on

31st March, 2009 was Rs. 1,00,000 each. They agreed to admit X, Y and Z as partner w.e.f. 1st

April, 2009. The terms for sharing Profits & Losses were as follows:

(a) 70% of the visiting fee is to go to the specialist concerned.

(b) 50% of the chamber fees will be payable to the individual specialist.

(c) 40% of operation fees and fees for pathological reports, X-ray and ECG will accrue in favour

of the doctor concerned.

(d) Balance of profit or loss is shared equally.

(e) All the partners are entitled for 6% interest on capital employed.

They further agreed that:

(i) X, Y and Z brought in Rs. 20,000 each as goodwill. Goodwill is shared by the existing partners

equally.

(ii) X, Y and Z were brought in Rs. 50,000 each as Capital. Each of the original partners also

contributed Rs. 50,000 by way of capital.

The receipts for the year after admission of new partners were:

Name of

doctors

Particulars Visiting Fees

Rs.

Chamber

Fees Rs.

Fees for

report,

operation

etc. Rs.

P

Q

R

X

Y

Z

General Physician

Gynecologist

Cardiologist

Child Specialist

Pathologist

Radiologist

1,50,000

25,000

1,00,000

2,00,000

1,75,000

1,00,000

1,50,000

1,00,000

75,000

1,00,000

2,00,000

Total 2,75,000 6,65,000 4,75,000

Expenses for the year were as follows:

Particulars Rs.

Medicines, injections and other consumables

Printing and Stationery

Telephone Expenses

Rent

Power and Light

Nurses Salary

Attendants wages

1,00,000

5,000

5,000

42,000

10,000

20,000

20,000

Total 2,02,000

Depreciation

X-Ray Machines

ECG equipments

Furniture

Surgical equipments

15,000

5,000

5,000

5,000

39

Total Depreciation 30,000

You are requested to:

(i) Pass necessary Journal entries on admission of partners.

(ii) Prepare the Profit and Loss Account of the Polyclinic for the year ended 31st March, 2010.

(iii) Prepare Capital Accounts of all the partners at the end of the Financial year 2009-10. Also

show the distribution of profit among partners.

Change in Ratio

Q.No.15: X and Y are partners in a business started in 2006, sharing profits and losses in the ratio

of 5:4. After the accounts for the calendar year 2009 were made up and their proportionate shares

taken note of in their individual accounts, they decide to share profit and losses equally

retrospectively for and from the year 2009. It was also discovered that in ascertaining the results in

prior years certain adjustments, details of which are given below, had not been noticed.

2006

Rs.

2007

Rs.

2008

Rs.

2009

Rs.

Profits as per accounts

Income not taken into account

Expenses not provided for

72,000

5,400

9,000

78,000

4,500

6,000

90,000

3,600

10,000

1,08,000

6,300

7,200

I. On 31st December, 2008 Reserve stood at Rs.54,000. Capitals of X and Y Rs.1,26,000 and

Rs.96,000 respectively on 31st December, 2009.

II. On 1st January, 2010 Z was decided to be admitted as a partner and was allotted 1/5 share.

Goodwill was decided to be ascertained by capitalising at 20% the average profits of the

immediately two preceding years before admission. Z would bring in proportionate capital.

Capitals of X and Y are to be equal, the differences to be adjusted in their current accounts.

III. Profits for 2010 were Rs.1,26,000. Drawings of X, Y, and Z for the year were Rs.54,000 Rs.48,000

and Rs.18,000 respectively.

IV. Incomes not taken into account are received in subsequent year. Expenses not provided for are

paid in subsequent years.

V. Prepare capital and current accounts of the partners for 2010.

40

Chapter-10: Shares

Q.No.1: Draft Journal Entry for all types of alteration of share capital.

a) Increase the share capital by issuing 10,000 new shares of Rs.100 each at Rs.125.

b) Consolidate its existing 10,00,000 Equity share of Rs.1 each fully paid into 10,000 Rs.100 fully paid

equity share.

c) Sub-divide its existing 50,000 Equity share of Rs.100 each fully paid into 1,00,000 Rs.50 fully paid

equity share.

d) Cancel shares, which have not been taken up : Shares issued 1,00,000. Shares Subscribed 90,000

only

e) Cancel shares, which have not been taken up and diminish the amount of the share capital by the number of shares so cancelled: Authorised Capital 1,00,000 share of Rs.100 each reduced to 75,000

share of Rs.100 each. The Issued, subscribed and paid up share capital is 75,000 share of Rs.100

each

Q.No.2: Draft Journal Entry for all types of reduction of share capital.

a) Rs. 50 are paid up, on a share of Rs. 100 and the company extinguishes the liability of the

remaining Rs. 50 , on 10,000 shares.

b) Rs. 100 fully paid up share and the company extinguishes/repays Rs.50 per share on 10,000,

symaltaneously reducing face value .

c) Rs. 100 fully paid up share and the company extinguishes/repays Rs. 50 per share, without

reducing face value, on 10,000.

Q.No.3: Draft Journal Entry for conversion of 1,00,000 Equity share of Rs.10 each fully paid into

stock

Q.No.4: Draft Journal Entry for conversion of Rs.10,00,000 stock in to 1,00,000 Equity share of

Rs.10 each fully paid.

Q.No.5: 10,000 6% Preference Share of Rs.100 each redeemable now. The terms of issue

provided that the preference share could be redeemed at a premium of 10% either by payment in cash or by allotment of other preference Shares, equity shares and/or debentures according to the

option of the preference share holders.

On 1st April, 2011, the company informed the preference share holders to redeem the preference

share on 1st May, 2011, either by payment in cash or by allotment of 8% preference shares of Rs.100 each at Rs.120 per share or 7% debentures of Rs.60 each at Rs.55 per debenture or Equity

share of Rs.10 each at Rs.20 per share.

Holders of 3,000 preference share accepted the offer of the 8% Preference Shares, holders of 2,000

preference share accepted the offer of 7% debentures, holders of 4,000 preference share accepted the offer of Equity shares and the rest demanded cash.

Give Journal entries recording the above redemption.

Q.No.6: CAPS Education India Ltd has 10,000 fully paid Equity shares of Rs100 each & 6000 Fully

convertible Debentures of Rs100 each. Debenture are convertible in to 5000 number of fully paid

equity shares after 6 month pass entries for the Bonus @ 1 for 4 shares held .

Q.No.7: The Balance Sheet of COSMOS Ltd., on 31st December, 2010, was as follows:


4000 Equity shares of Rs.100, each,

Rs.80 paid

Share Premium Account

Capital Redemption Reserve A/c.

General Reserve

Profit & Loss Account

Sundry Creditors

3,20,000

60,000

70,000

1,00,000

3,00,000

1,50,000

Sundry Assets 10,00,000

10,00,000 10,00,000

41

The directors recommend the following with a view to capitalising whole of share premium account,

Capital Redemption Reserve Account, General Reserve and Rs. 50,000 out of Profit and Loss Account.

1. The existing shares are made fully paid without the shareholders having to pay anything.

2. Each shareholder to be given fully paid bonus shares at a premium of 25% for the remaining

amount in proportion to his holdings. Assuming that the scheme is accepted and that all formalities are gone through, give journal entries and also show in what proportion bonus shares

will be distributed among shareholders.

Q.No.8: The Balance Sheet of A Ltd. as at 31.3.2011 is as follows :


Authorised Share Capital

1,50,000 Equity Shares of Rs. 10

each

Issued , Subscribed and paid-up

80,000 Equity Shares of Rs. 7.50

each called-up and paid -up

Reserves:

Capital Redemption Reserve

Plant Revaluation Reserve

Share Premium Account

Development Rebate Reserve

Investment Allowance Reserve

General Reserve

15,00,000

6,00,000

1,50,000

20,000

1,50,000

2,30,000

2,50,000

3,00,000

Sundry Assets

17,00,000

Total 17,00,000 Total 17,00,000

The company wanted to issue bonus shares to its shareholders at the rate of one share for every two shares held. Necessary resolution were passed; required legal requirements were complied with:

(a) You are required to give effect to the proposal by passing journal entries in the books of A Ltd.

(b) Show the amended Balance Sheet .

Q.No.9: (IPCC-Gr.-I-Nov. 10) The following is the Balance Sheet of Bumbum Limited as at 31st

March, 2009:

Sources of Funds Rs.

Authorized Capital

50,000 Equity shares of Rs. 10 each

10,000 Preference shares of Rs. 100 each

5,00,000

10,00,000

Issued subscribed and paid up 15,00,000

30,000 Equity shares of Rs. 10 each

5,000 Redeemable 8% Preference shares of Rs. 100 each

Reserves & Surplus

Securities Premium

General Reserve

Profit & Loss A/c

2500, 9% Debentures of Rs. 100 each

Sundry Creditors

3,00,000

5,00,000

6,00,000

6,50,000

1,80,000

2,50,000

1,70,000

26,50,000

Application of Funds

Fixed Assets (net)

Investments (market value Rs. 5,80,000)

Deferred Tax Assets

Sundry Debtors

Cash & Bank balance

7,80,000

4,90,000

3,40,000

6,20,000

2,80,000

42

Preliminary expenses 1,40,000

26,50,000

In Annual General Meeting held on 20th June, 2009 the company passed the following resolutions:

1. To split equity share of Rs. 10 each into 5 equity shares of Rs. 2 each from 1st July, 09. 2. To redeem 8% preference shares at a premium of 5%.

3. To redeem 9% Debentures by making offer to debenture holders to convert their holdings into equity shares at Rs. 10 per share or accept cash on redemption.

4. To issue fully paid bonus shares in the ratio of one equity share for every 3 shares held

on record date.

On 10th July, 2009 investments were sold for Rs. 5,55,000 and preference shares were redeemed.

40% of Debenture holders exercised their option to accept cash and their claims were settled on

1st August, 2009.

The company fixed 5th September, 2009 as record date and bonus issue was concluded by 12th

September, 2009.

You are requested to journalize the above transactions including cash transactions and prepare

Balance Sheet as at 30th September, 2009. All working notes should form part of your answer.

43

Chapter-11: Profit Prior to Incorporation

Q.No.1: (PCC-May 10) X Ltd. was incorporated on 1.8.2009 to take over the running business of

M/s Kumar Bros. with effect from 1.4.2009. The accounts of the company were closed on 31.3.2010.

The average monthly Sales during the first four months of the year (2009-10) was twice the average

monthly sales during each of the remaining eight months.

Calculate Time Ratio and Sales Ratio.

Q.No.2: (PCC-May 10) ABC Ltd. took over a running business with effect from 1st April, 2009. The

company was incorporated on 1st August, 2009. The following P & L A/c has been prepared for

the year ended 31.3.2010:

Dr. Rs. Cr. Rs.

To Salaries

To Stationery

To Travelling expenses

To Advertisement

To Misc. trade exp.

To Rent (office buildings)

To Electricity charges

To Director’s fees

To Bad debts

To Commission to selling Agents

To Audit fees

To Debenture interest

To Int. paid to vendors

To Selling expenses

To Depreciation on fixed assets

To Net profit

48,000

4,800

16,800

16,000

37,800

26,400

1,200

11,200

3,200

16,000

6,000

3,000

4,200

25,200

9,600

90,600

By Gross profit 3,20,000

3,20,000 3,20,000


(a) Total sales for the year, which amounted to Rs. 19,20,000 arose evenly upto the date of

30.9.2009. Thereafter they spurted to record an increase of two-third during the rest of the

year.

(b) Rent of office building was paid @ Rs. 2,000 per month upto September, 2009 and thereafter

it was increased by Rs. 400 per month.

(c) Travelling expenses include Rs. 4,800 towards sales promotion.

(d) Depreciation include Rs. 600 for assets acquired in the post incorporation period.

(e) Purchase consideration was discharged by the company on 30th September, 2009 by issuing

equity shares of Rs. 10 each.

Prepare the P & L A/c in columnar form showing distinctly the allocation of expenses between pre

and post incorporation periods.

Q.No.3: (IPCC-Gr.-I-Nov. 10) The partners of Shri Enterprises decided to convert the partnership

firm into a Private Limited Company Shreya (P) Ltd. with effect from 1st January, 2008. However,

company could be incorporated only on 1st June, 2008. the business was continued on behalf of

44

the company and the consideration of Rs. 6,00,000 was settled on that day along with interest @

12% per annum. The company availed loan of Rs. 9,00,000 @ 10% per annum on 1st June, 2008

to pay purchase consideration and for working capital. The company closed its accounts for the

first time on 31st March, 2009 and presents you the following summarized profit and loss account:

Rs. Rs.

Sales

Cost of goods sold

Discount to dealers

Directors’ remuneration

Salaries

Rent

Interest

Depreciation

Office expenses

Sales promotion expenses

Preliminary expense

(to be written off in first year itself)

11,88,000

46,200

60,000

90,000

1,35,000

1,05,000

30,000

1,05,000

33,000

15,000

19,80,000

18,07,200

1,72,800

Sales from June, 2008 to December, 2008 were 2 ½ times of the average sales, which further

increased to 3 ½ times in January to March quarter, 2009. The company recruited additional

work force to expand the business. The salaries from July, 2008 doubled. The company also

acquired additional showroom at monthly rent of Rs. 10,000 from July, 2008.

You are required to prepare a Profit and Loss Account showing apportionment of cost and

revenue between pre-incorporation and post-incorporation periods. Also suggest how the pre-

incorporation profits/losses are to be dealt with.

45

Chapter-12: Company Financial Statements

Q.No.1: Given below is the Trial Balance (rounded off to rupees thousands) of Bharat Implements

Limited as at the end of their financial year 2010-11 and additional information to be considered while preparing the final accounts which you are required to do in proper form:

Trial Balance as on 31st March, 2011

Debit Rs. Credit Rs.

Stock (01-04-2010)

Raw Material and Stores

Work-in-process

Finished Goods

Purchases

Salaries and Wages

Other Expenses

Depreciation

Fixed Assets at Cost

Investments

Interest accrued

Sundry Debtors

Cash at Bank

Loans and Advances

50,020

20,080

99,900

4,48,400

29,710

1,17,640

3,550

63,870

190

25

59,000

320

580

Sales

Other Income

Shares Capital



General Reserve

Secured Loans

Fixed Deposits

Depreciation Reserve

Sundry Creditors

Provision for doubtful debts

6,69,700

2,880

20,000

2,340

4,250

25,800

13,480

16,000

28,000

1,10,775

60

8,93,285 8,93,285


1. Stocks at the end of 31.03.2011: (Rs. in thousands) Raw Materials & stores 30,010 Work-in-process 25,040 Finished Goods 75,950

2. Depreciation allowable under section 350 for the year Rs.4,250 thousands.

3. Depreciation allowable for Income tax for the year Rs.4,750 thousands. 4. Market value of investments Rs.150 thousands.

5. Sundry debtors include Rs.121 thousands due for more than six months out of which provision has been made for doubtful debts at Rs.45 thousands during the year.

6. Included in other expenses are: (i) Fees to auditors Rs.65 thousands, out of whichRs.15 thousands are in other capacities. (ii) Interest on fixed loans Rs.620 thousands and other interest

Rs.1000 thousands

7. Rs.340 thousands are to be re-transferred from Development Rebate Reserve A/c. 8. Income-tax is to be provided at 40.00% of taxable income.

9. Provision is to be made for Managing Director's remuneration at 5% of net profits as provided under law, subject to a maximum of Rs.240 thousand per annum.

10. Balance of profit is to be transferred to General Reserve after providing for dividend at 25% on

capital. 11. The authorised capital of the company is 20 lacs equity shares of Rs.10 each.

Q.No.2: The following is the Trial balance of Subhash Limited as on 31.3.2011:



Land at cost

Plant & machinery at cost

Debtors

Stock

Bank

Adjusted Purchases

Factory Expenses

Administration Expenses

Selling Expenses

110

385

48

43

10

160

30

15

15

Equity capital (shares of Rs. 10 each)

10% Debentures

General Reserves

Profit & Loss A/c

Share Premium

Sales

Creditors


Suspense Account

150

100

65

36

20

350

26

86

2

46



Debenture Interest

Interim Dividend Paid

10

9

835 835


a) On 31.3. 2011, the company issued bonus shares to the Shareholders on 1:3 basis. No entry relating to this has yet been made.

b) The authorised share capital of the company is 25,000 shares of Rs. 10 each.

c) The company on the advice of independent valuer wishes to re-value the land at Rs. 1,80,000.

d) Proposed final dividend 10%.

e) Suspense account of Rs. 2,000 represents cash received for the sale of some of the machinery on 1.4.2010. The cost of the machinery was Rs. 5,000 and the accumulated depreciation thereon

being Rs. 4,000.

f) Depreciation to be provided on Plant and Machinery at 10% on cost. You are required to prepare Subhash limited profit and Loss account for the year ended 31.3.2011 and a balance sheet on

that date in vertical form as per the provisions of schedule VI of the companies act , 1956.

g) 2,000 equity shares were issued for consideration other than cash.

h) The Debentures are secured by hypothecation of the Plant and Machinery.

i) Balance at Bank includes Rs.2,000 with Perfect Bank Ltd. which is not a scheduled Bank.

j) Bill receivable for Rs.25,000 maturing on 30th June, 2011, have been discounted.

k) The company had contract for the erection of machinery at Rs.1,50,000, which is still incomplete.

Your answer to include detailed schedules only for the following:

(1) Share capital. (2) Reserve & Surplus. (3) Fixed Assets.

Ignore Previous year ‘s figures & taxation.

Q.No.3: Following are the balances (rounded off to the nearest thousands) from the books of Good

Earth Ltd. as of 31-12-2010:

Rs. Rs.

Sales

Other Income

Investment allowance Reserve

Investment

Purchases

Other Expenses

Sundry Debtors

Secured Loans

Loans and Advances

Depreciation Reserve

Sundry Creditors

13,39,400

5,760

8,500

380

8,96,800

2,25,280

1,18,000

26,960

1,160

56,000

2,21,550

Depreciation


Fixed Assets at cost

Interest accrued (Dr.)

Salaries and Wages

General Reserve

Share Capital

Cash at Bank

Fixed Deposits

Provision for doubtful debts

7,100

4,680

1,27,740

50

69,420

51,600

40,000

640

32,000

120

Calculate Managing Director's remuneration and prepare in the proper form the Profit and Loss

Account and Balance Sheet as of December, 31, 2010 with the help of the following additional

information:

(All figures in Rs. Thousands)

(1) Stocks:

Raw Material and Stores

Work in process

Finished Goods

On 1-1-2010

1,00,040

90,160

1,49,800

On 31-12-2010

50,020

40,080

1,61,900

(2)

(3)

(4)

(5)

Depreciation u/s. 350

Depreciation as per Income Tax rules

Market Value of Investments

Sundry Debtors due for more than six months

Out of above, provision made this year for doubtful debts

Included in other expenses are:

8,400

8,000

290

720

80

47

(a) Auditor's fee for audit

(b) Payment to auditors for other services

120

40

(6)

(7)

(8)

(9)

Income Tax to be provided at 55%

Managing Director's remuneration is at 5% of net profits as per the law subject to maximum

of Rs.240 thousand per annum.

Provide dividends at 25% on capital & transfer balance profit to General Reserve.

Authorised capital of the company is 6 lakh Equity Shares of Rs.100 each. Out of this, 4 lakh share have been issued and fully paid.

Q.No.4: ET Limited are in the midst of finalising their accounts for the year ended 30th September

2011. A profit and loss account has been prepared in draft. The account balances as rounded off to

the nearest thousands, are listed below:

Particulars Rs.

Share Capital

General Reserve


Land

Buildings

Plant & Machinery

Furniture, Fixtures and Office Equipment

Vehicles

Depreciation Reserve:

-Buildings

-Plant and Machinery

-Furniture etc.

-Vehicles

Loan from State Government

Other Secured loans

Fixed Deposits from public

Unsecured loans

Raw Materials and components

Work-in-progress

Finished Goods

Stores and Spares

Tools, jigs and Dies

Cash Credits from banks

Acceptances

Sundry Creditors

Others Current Liabilities

Interest accrued but not due on loans

Provision for Gratuity and Pension

Interest Accrued on deposits

Sundry debtors

Cash-in-hand

Balance with banks - on Current A/cs.

-- do -- on Deposit A/cs.

Loans and advances

Preliminary expenses

Advance Income-tax Paid

25,000

6,031

6,271

2,225

9,316

64,282

1,594

454

2,193

30,328

568

245

575

32,460

2,400

1,114

42,014

6,116

1,414

2,771

9,187

30,672

2,645

6,162

10,317

589

241

2

24,231

37

39

27

4,518

8

3,489

48

Capital Work- in progress

Profit and Loss A/c. (profit for the year)

596

14,509

In arriving at the profit for the year, the following have been charged.

(Rs. thousands)

(a) Depreciation 12,424

(b) Salary and perquisites to Managing Director 72

(c) Directors Fees 4

The authorised capital is 3,50,000 equity shares of Rs.100 each.

The loans from the State Government is secured by a charge on the land, cash credits by

hypothecation of stocks and book debts and the other secured loans on the buildings and plant and

machinery.

The following adjustments are yet to be made:

(1) Investment allowance reserve to be created Rs: thousands 5,400

(2) Provision to be made for Income Tax in Rs: thousands 4,400

(3) Provision to be made for Managing Director's Commission at 1%of the net profits.

(4) Proposed dividends at 10%.

(5) Depreciation as per Section 350 of the Companies Act. in Rs. Thousands is 10,424. You are

required to:

(a) Show the computation of commission to the Managing Director, and

(b) Prepare the Balance Sheet of the company, based on all the above.

49

Chapter-13: Investment Account

Investment in Debentures/Bonds

Q.No.1: 2000 Debentures of Rs. 100 each purchased on 1.7.2011 at a cost of Rs. 2,10,000 through

a broker who is entitled for 2% brokerage and stamp duties for transfer is Rs. 4,000. Due date of

interest is 30th June. Pass Journal entry.

Q.No.2: (IPCC-Gr.-I-May 10) Mr. X purchased 1,000, 6% Government Bonds of Rs. 100 each on

31st January, 2009 at Rs. 95 each. Interest is payable on 30th June and 31st December. The price

quoted is cum interest. Journalise the transaction.

Q.No.3: (IPCC-Gr.-I-May10) Gamma Investment Company hold 1,000, 15% debentures of Rs.

100 each in Beta Industries Ltd. as on April 1, 2009 at a cost of Rs. 1,05,000. Interest is payable on

June, 30 and December, 31 each year.

On May 1, 2009, 500 debentures are purchased cum-interest at Rs. 53,500. On November 1,2009, 600 debentures are sold ex-interest at Rs. 57,300. On November 30, 2009, 400 debentures are

purchased ex-interest at Rs. 38,400. On December 31, 2009, 400 debentures are sold cum-interest

for Rs. 55,000.

Prepare the investment account showing value of holdings on March 31, 2010 at cost, using FIFO method.

Q.No.4: Calcutta Investments hold 400, 12 per cent Debentures of Rs.100 each in Acme Ltd. as on

1st April, 2010 at a cost of Rs.50,000. Interest is payable on 30th June and 31st December each year.

On 1st June, 2010, 200 Debentures are purchased cum-interest at Rs. 21,400. On 1st November, 2010, 300 Debentures re-sold ex-interest at Rs. 28,650. On 30th Nov. 2010, 200 Debentures are

purchased ex-interest at Rs.19,200. On 31st December, 2010, 300 Debentures are sold-cum-interest for Rs. 32,250. Prepare Investment A/c valuing closing stock as on 31.3.2011 at cost (applying FIFO

method) or market prices whichever is lower. The Debentures were quoted at par on 31.3.2011.

Investment in Equity Shares

Q.No.5: 2000 Equity Shares of Rs. 100 each purchased on 1.7.2011 at a cost of Rs. 2,80,000 through a broker who is entitled for 2% brokerage and stamp duties for transfer is Rs. 6,000. On 1.10.2011,

20% dividend is received from the above company for the year 1.4.2010 to 31.3.2011 Pass Journal entry.

Q.No.6: (IPCC-Gr.-I-Nov. 10) H purchased 500 equity shares of Rs. 100 each in the ABC Company

Limited for Rs. 62,500 inclusive of brokerage and stamp duty. Some years later the company decided to capitalize its profit and to issue to the holders of equity shares one equity shares as bonus share

for every share held by them. Prior to capitalization, the shares of ABC Company Limited were quoted at Rs. 175 per share. After the capitalization, the shares were quoted at Rs. 92.50 per share. H sold

the Bonus shares and received Rs. 90 per share. Show Investment A/c in H’s books on average cost

basis as per AS-13.

Q.No.7: (IPCC-Gr.-I-May 11) On 1st April, 2010, Rajat has 50,000 equity shares of P Ltd., at a

book value of Rs. 15 per share (face value Rs. 10 each). He provides you the further information:

(1) On 20th June, 2010 he purchased another 10,000 shares of P Ltd. at Rs. 16 per share.

(2) On 1st August, 2010, P Ltd. issue one equity bonus share for every six shares held by the

shareholders.

(3) On 31st October, 2010 the directors of P Ltd. announced a right issue which entitle the holders

to subscribe three shares for every seven shares at Rs. 15 per share. Shareholders can transfer their rights in full or in part.

Rajat sold 1/3rd of entitlement to Umang for a consideration of Rs. 2 per share and subscribe the rest

on 5th November, 2010.

You are required to prepare Investment A/c in the books of Rajat for the year ending 31st March,

2011.

50

Q.No.8: (PCC-Nov. 10) On 1st April 2009 XY Ltd. has 15,000 equity shares of ABC Ltd. at a book

value of Rs. 15 per share (face value Rs. 10 per share). On 1st June 2009, XY Ltd. acquired 5,000

equity shares of ABC Ltd. for Rs. 1,00,000 on cum right basis.

ABC Ltd. announced a bonus and right issue.

(1) Bonus was declared, at the rate of one equity share for every five shares held on 1 July 2009.

(2) Right shares are to be issued to the existing shareholders on 1st Sept. 2009. The company will

issue one right share for every 6 shares at 20% premium. No dividend was payable on these

shares.

(3) Dividend for the year ended 31 – 3 – 2009 were declared by ABC Ltd. @ 20%, which was

received by XY Ltd. on 31st Oct. 2009.

XY Ltd.

(i) Took up half the right issue.

(ii) Sold the remaining rights for Rs. 8 per share.

(iii) Sold half of its share holdings on 1st Jan. 2010 at Rs. 16.50 per share. Brokerage being 1%.

You are required to prepare Investment a/c of XY Ltd. for the year ended 31st March 2010 assuming

the shares are being valued at average cost.

Q.No.9: 'A' holds 2000 shares at a cost of Rs. 20, aggregating to Rs. 40,000/- he receives a right offer @ 1:2 i.e. right for 1000 shares at Rs. 16 each. Pass Journal entries for right issue under

following entries:

I. He allows the right to lapse.

II. If he subscribes for the rights.

III. If he sells the right at Rs. 3 each, & the original lot was purchased ex-right (i.e. old holding)

IV. If he sells the right at Rs. 3 each. The original lot was purchased cum-right (i.e. recent purchase). Give accounting under the following alternative:

(a) If the market value of shares ex-right (i.e. after the right allotment is completed and old +

new shares are traded in the market) is Rs. 20 or more.

(b) If the market value of shares ex-right is Rs. 18.50 or less (M.V. of the holding will be Rs. 37,000/- or less)

(c) If the market value of shares ex-right is Rs. 19 (M.V. of the holding will be Rs. 38,000/-)

51

Chapter-14: Cash Flow Statement

Q.No.1: The following summary cash account has been extracted from the company’s accounting

records:

Summary Cash Account (Rs.’000)

Balance at 1.1.2010 35

Receipts from customers 2,783

Issue of shares 300

Sale of fixed assets 128

3,246

Payments to suppliers 2,047

Payments for fixed assets 230

Payments for overhead 115

Wages and salaries 69

Taxation 243

Dividends 80

Repayments of bank loan 250

(3,034)

Balance at 31.12.2010 212

Prepare Cash Flow Statement of this company Hills Ltd. for the year ended 31st December 2010 in

accordance with AS-3 (Revised).

Q.No.2: From the following information, you are required to ascertain the amount of flow of cash on

account of plant:

Rs.

Opening balance of plant 1,32,500

Closing balance of plant 1,97,500

Provision of depreciation on plant at the beginning of the year 45,000

Provision for depreciation on plant at the end of the year 61,000

During the year, a plant costing Rs. 65,000 was purchased in exchange for fully paid debentures. An

old plant costing Rs. 40,000 was sold for Rs. 34,000. Depreciation provided on the same amounted to Rs. 18,000.

Q.No.3: From the following information calculate cash from operations:

Particulars

Rs.

2009

Rs.

2010

P&L A/c (credit) 40,000 50,000

Debtors 20,000 26,000

Bills Receivable 20,000 12,000

Prepaid Rent 2,000 3,000

Prepaid Insurance 1,000 800

Goodwill 20,000 14,000

Depreciation provision 32,000 40,000

Creditors 20,000 30,000

Q.No.4: Prepare a Cash Flow statement from the following:

52

Particulars Rs.

2009

Rs.

2010

Assets

Cash 60,000 94,000

Debtors 2,20,000 2,10,000

Stock 1,80,000 2,00,000

Land 1,00,000 1,32,000

Total 5,60,000 6,36,000

Capital & liabilities

Share capital 4,00,000 5,00,000

Creditors 1,40,000 90,000

Retained earnings 20,000 46,000

Total 5,60,000 6,36,000

Q.No.5: From the following balance sheets of Sulekha Ltd. You are required to prepare a cash flow statement:

Liabilities 2009 Rs. 2010 Rs. Assets 2009 Rs. 2010 Rs.

Share capital 2,00,000 3,25,000 Cash 45,000 70,500

Debenture 1,00,000 50,000 Debtors 1,90,000 1,72,500

Trade Creditors 1,05,000 67,500 Stock in Trade 1,10,000 1,35,000

P&L A/c 15,000 34,500 Land 75,000 99,000

4,20,000 4,77,000 4,20,000 4,77,000

Q.No.6: (PCC-May 10) From the following information prepare cash flow statement of A (P) Ltd. as

at 31st March, 2010 by using indirect method:

Balance Sheet

Liabilities 2009

Rs.

2010

Rs.

Share capital

Profit & Loss A/c

Long Term Loans

Creditors

12,00,000

8,50,000

10,00,000

3,50,000

12,00,000

10,00,000

10,60,000

4,00,000

34,00,000 36,60,000

Assets

Fixed Assets

Investment in shares

Stock

Debtors

Cash

Bills Receivable

17,00,000

2,00,000

6,80,000

7,20,000

60,000

40,000

20,00,000

2,00,000

7,00,000

6,60,000

70,000

30,000

34,00,000 36,36,000

53

Income Statement for the year ended 31st March, 2010

Sales

Less: Cost of sales

Gross Profit

Less: Operating expenses

Administrative expenses

Depreciation

4,60,000

2,20,000

40,80,000

27,20,000

13,60,000

6,80,000 6,80,000

Operating Profit

Add: Non-operating incomes (dividend received)

6,80,000

50,000

Less: Interest paid

7,30,000

1,40,000

Less: Income-tax

5,90,000

2,60,000

Profit after tax 3,30,000

Statement of Retained Earnings

Opening balance

Add: Profit

Rs.

8,50,000

3,30,000

Less: Dividend paid

11,80,000

1,80,000

Closing balance 10,00,000

Q.No.7: (IPCC-Gr.-I-Nov. 10) From the following information, prepare a Cash Flow Statement as

per AS-3 for Banjara Ltd., using direct method:

Balance Sheet as on March 31, 2010 (Rs.000)

Assets 2010 2009

Cash on hand and balances with bank

Marketable securities (having one month Maturity)

Sundry Debtors

Interest Receivable

Inventories

Investments

Fixed Assets at Cost

Accumulated Depreciation

Fixed Assets (net)

200

670

1,700

100

900

2,500

2,180

(1,450)

730

25

135

1,200

–

1,950

2,500

1,910

(1,060)

850

Total Assets 6,800 6,660

Liabilities:

Sundry Creditors

Interest Payable

Income tax Payable

Long term Debt

150

230

400

1,110

1,890

100

1,000

1,040

1,890 4,030

Shareholder’s Fund:

Share Capital

Reserves

1,500

3,410

1,250

1,380

54

4,910 2,630

Total Liabilities and Shareholders’ Fund 6,800 6,660

Statement of Profit or Loss for the year ended 31-3-10

(Rs.’000)

Sales

Cost of sales

30,650

(26,000)

Gross profit

Depreciation

Administrative and Selling expenses

Interest expenses

Interest income

Dividend income

4,650

(450)

(910)

(400)

300

200

Net profit before taxation and extraordinary items

Extraordinary items:

Insurance proceed from earthquake disaster settlement

3,390

140

Net profit after extraordinary items

Income tax

3,530

(300)

Net profit 3,230


(i) An amount of Rs. 250 was raised from the issue of share capital and a further Rs. 250 was raised from long-term borrowings.

(ii) Interest expense was Rs. 400 of which Rs. 170 was paid during the period Rs. 100 relating

to interest expense of the prior period was also paid during the period.

(iii) Dividends paid were Rs. 1,200.

(iv) Tax deducted at source on dividends received (included in the tax expense of Rs. 300 for the year) amounted to Rs. 40.

(v) During the period the enterprise acquired Fixed Assets for Rs. 350. The payment was made

in cash.

(vi) Plant with original cost of Rs. 80 and accumulated Depreciation of Rs. 60 was sold for Rs.

20.

(vii) Sundry debtors and Sundry creditors include amounts relating to credit sales and credit

purchase only.

Q.No.8: From the following balance sheets of Sneha Ltd. as on 31.3.2010 and 31.3.2011 prepare a Cash Flow statement for the year ending 31.3.2011:

Liabilities 31.3.2010

Rs.

31.3.2011

Rs.

Assets 31.3.2010

Rs.

31.3.2011

Rs.

Equity share capital

Profit and loss account

10% debentures

Creditors

Bills payable

Provision for tax

Dividend payable

13,00,000

4,90,100

16,25,000

9,00,000

42,500

2,60,000

-

16,90,000

8,77,500

13,00,000

10,00,000

1,70,000

9,75,000

42,250

Goodwill

Building

Machinery

Non-trade investments

Debtors

Stock

Cash

Prepaid expenses

Debenture discount

65,000

11,70,000

16,18,500

5,07,000

4,16,000

5,07,000

2,60,000

42,250

31,850

42,500

11,37,500

21,38,500

3,93,250

11,70,000

7,99,500

2,92,500

52,000

29,000

46,17,600 60,54,750 46,17,600 60,54,750

The following additional information is given:

i) Building Machinery

55

Rs. Rs.

Accumulated depreciation 31.3.2010

Accumulated depreciation 31.3.2011

Depreciation for 2010-11

ii) Profit and loss account for 2010-11 is as follows:

4,87,500

5,20,000

32,500

15,92,500

15,66,500

1,36,500

Balance as on 31.3.2010

Add: Profit for 2010-11

4,90,100

4,71,900

Less: Dividend

9,62,000

84,500

8,77,500

iii) During 2010-11 machinery costing Rs. 2,92,500 was sold for Rs. 97,500

iv) Investments which were sold for Rs. 1,17,000 had cost Rs. 97,500.

Q.No.9: From the following details of Grow More Ltd. prepare cash flow statement:

Liabilities 31.3.2011 (Rs.)

31.3.2010 (Rs.)

Share capital 10,00,000 8,00,000

Reserve 2,00,000 1,50,000

Profit and loss account 1,00,000 60,000

Debentures 2,00,000 --

Provision for taxation 1,00,000 70,000

Proposed dividend 2,00,000 1,00,000

Sundry creditors 7,00,000 8,20,000

25,00,000 20,00,000

Assets

Plant and machinery 7,00,000 5,00,000

Land/building 6,00,000 4,00,000

Investments 1,00,000 --

Sundry debtors 5,00,000 7,00,000

Stock 4,00,000 2,00,000

Cash on hand/bank 2,00,000 2,00,000

25,00,000 20,00,000

i) Depreciation @25% was charged on the opening value of plant and machinery.

ii) During the year one old machine costing 50,000 (WDV 20,000) was sold for Rs. 35,000.

iii) Rs. 50,000 was paid towards income tax during the year.

iv) Building under construction was not subject to any depreciation.

Prepare cash flow statement.

Q.No.10: (PCC-May 11) From the following information, prepare Cash Flow Statement of Amex

Limited for the year ended 31st March, 2010 by using indirect method:

Balance Sheet as on:

31-3-2009 (Rs.) 31-3-2010 (Rs.)

Liabilities

Share Capital

Reserves

Profit and Loss Account

Debentures

5,00,000

1,50,000

40,000

3,00,000

6,00,000

1,80,000

65,000

2,50,000

56

Creditors for goods

Provision for Income Tax

1,70,000

60,000

1,60,000

80,000

12,20,000 13,35,000

Assets

Gross Block

Less: Depreciation

Net Block

Stock in Trade

Book Debts

Cash in hand and at bank

Misc Expenditure

Discount on issue of shares

Preliminary Expenses

10,00,000

3,70,000

6,30,000

2,40,000

2,50,000

80,000

10,000

10,000

11,20,000

4,60,000

6,60,000

3,70,000

2,30,000

60,000

7,500

7,500

12,20,000 13,35,000

Profit and Loss Appropriation Account for the year ended 31st March, 2010

Particulars Debit

(Rs.)

Particulars Credit

(Rs.)

To Transfer to Reserves

To Interim Dividend paid

To Balance carried to Balance sheet

30,000

80,000

65,000

By Balance b/d

By Net Profit for current year

40,000

1,35,000

1,75,000 1,75,000

Q.No.11: (IPCC-Gr.-I-May 11) The following are the summarized Balance Sheets of Lotus Ltd. as

on 31st March, 2010 and 2011:

Liabilities 31-3-10 31-3-11

Equity share capital (Rs. 10 each)

Capital Reserve

Profit and Loss A/c

Long term loan from the bank

Sundry creditors

Provision for taxation

10,00,000

–

4,00,000

5,00,000

5,00,000

50,000

12,50,000

10,000

4,80,000

4,00,000

4,00,000

60,000

24,50,000 26,00,000

Assets Rs. Rs.

Land and building

Machinery

Investment

Stock

Sundry Debtors

Cash in hand

Cash at bank

4,00,000

7,50,000

1,00,000

3,00,000

4,00,000

2,00,000

3,00,000

3,80,000

9,20,000

50,000

2,80,000

4,20,000

1,40,000

4,10,000

24,50,000 26,00,000


57

(1) Depreciation written off on land and building Rs. 20,000.

(2) The company sold some investment at a profit of Rs. 10,000, which was credited to Capital

Reserve.

(3) Income-tax provided during the year Rs. 55,000.

(4) During the year, the company purchased a machinery for Rs. 2,25,000. They paid Rs.

1,25,000 in cash and issue 10,000 equity shares of Rs. 10 each at par.

You are required to prepare a cash flow statement for the year ended 31st March, 2011 as per

AS-3, by using indirect method.

Q.No.12: (IPCC-Gr.-I-May10) The following particulars relate to Bee Ltd. for the year ended 31st

March, 2010:

(i) Furniture of book value of Rs. 15,500 was disposed off for Rs. 12,000.

(ii) Machinery costing Rs. 3,10,000 was purchased and Rs. 20,000 were spent on its

erection.

(iii) Fully paid 8% preference shares of the face value of Rs. 10,00,000 were redeemed at a

premium of 3%. In this connection 60,000 equity shares of Rs. 10 each were issued at a

premium of Rs. 2 per share. The entire money being received with applications.

(iv) Dividend was paid as follows:

On 8% preference shares Rs. 40,000

On equity shares for the year 2009-10 Rs. 1,10,000

(v) Total sales were Rs. 32,00,000 out of which cash sales were Rs. 11,50,000.

(vi) Total purchases were Rs. 8,00,000 including cash purchase of Rs. 60,000.

(vii) Total expenses were Rs. 12,40,000.

(viii) Taxes paid including dividend tax of Rs. 22,500 were Rs. 3,30,000.

(ix) Cash and cash equivalents as on 31st March, 2010 were rs. 1,25,000.

You are requested to prepare Cash Flow Statement as per AS-3 for the year ended 31st March, 2010

after taking into consideration the following also:

On 31st March, 2009

Rs.

On 31st March, 2010

Rs.

Sundry debtors

Sundry creditors

Unpaid expenses

1,50,000

78,000

63,000

1,47,000

83,000

55,000

58

Chapter-15: Amalgamation

Q.No.1: (IPCC-Gr.-I-May 10) The abstract of the Balance Sheet of the AXE Ltd. as at 31st March

2011, are as follows:

Liabilities Rs.


12% preference share capital (Rs. 100 each)

13% Debentures

15,00,000

8,00,000

3,00,000

On the 31st March, 2011 BXE Ltd. agreed to take over AXE Ltd. on the following terms:

(1) For each preference share in AXE Ltd., Rs. 10 in cash and one 9% preference share of Rs.

100 in BXE Ltd.

(2) For each equity share in AXE Ltd., Rs. 20 in cash and one equity share in BXE Ltd. of Rs. 100

each. It was decided that the share in BXE Ltd. will be issued at market price Rs. 140 per

share.

(3) Liquidation expenses of AXE Ltd. are to be reimbursed by BXE Ltd. to the extent of Rs.

10,000. Actual expenses amounted to Rs. 12,500.

You are required to compute the amount of purchase consideration.

Q.No.2: The Indo-Gulf Co. Ltd. sells its business to the Continental Co. Ltd. as on December 31, 2010, on which date its Balance Sheet was as under:


Paid-up Capital 2000 shares 2,00,000 Freehold property 1,50,000

Of Rs.100 each Goodwill 50,000

Debentures 1,00,000 Plant and Tools 83,000

Trade Creditors 30,000 Stock 35,000

Reserve Fund 50,000 Bills Receivable 4,500

Profit & Loss Account 20,000 Sundry Debtors 27,500

Cash at Bank 50,000

4,00,000 4,00,000

The Continental Co. Ltd. agreed to take over the Assets (exclusive of cash at Bank and Goodwill) at

10 percent less than the book value, to pay Rs. 75,000 for Goodwill, and to take over the Debentures.

The purchase consideration was to be discharged by the allotment to the Indo-Gulf Ltd. of 1,500

shares of Rs.100 each at premium of Rs.10 per share and the balance in cash.

The cost of the liquidation amounted to Rs. 3,000. Show the necessary Accounts in the books of the

Indo-Gulf Co. Ltd. and show the necessary journal entries recording the transactions in the books of

the Continental Co. Ltd.

Q.No.3: The following are the Balance Sheets of Strong Limited and Small Limited as at 31.12. 2010:

Liabilities Strong

Ltd.

Rs.

Small

Ltd.

Rs.

Assets Strong

Ltd.

Rs.

Small

Ltd.

Rs.

Share Capital

Shares of the face value

of Rs.10 each

Reserves

Secured Loans

10% Debentures

Current Liabilities

Trade Creditors

1,50,000

95,000

--

47,000

1,20,000

10,000

20,000

32,000

Fixed Assets

at cost less depreciation

Current Assets:

Stock

Trade Debtors

Balance at Bank

1,40,000

42,000

30,000

80,000

75,000

47,000

50,000

10,000

2,92,000 1,82,000 2,92,000 1,82,000

Strong Limited agreed to absorb Small Limited as on 31st December, 2010 on the following terms:

59

1) Strong Limited agreed to repay 10% debentures of Small Limited.

2) Strong Limited to revalue its Fixed Assets at Rs.1,95,000, to be incorporated in the books.

3) Shares of both companies to be valued on net Assets basis, after considering Rs. 50,000 towards value of goodwill of Small Limited.

4) The cost of absorption of Rs. 3,000 are met by Strong Limited.


(a) Calculate the ratio of exchange of shares.

(b) Give journal entries in the books of Strong Limited.

(c) Construct the bank account to arrive at the Balance on absorption.

Q.No.4: Star and Moon had been carrying on business independently. They agreed to amalgamate

and form a new company Neptune Ltd. with an authorised share capital of Rs. 2,00,000 divided into 40,000 equity shares of Rs. 5 each. On 31st December, 2010, the respective Balance Sheets of Star

and Moon were as follows :

Star Rs. Moon

Rs.

Fixed Assets 3,17,500 1,82,500

Current Assets 1,63,500 83,875

4,81,000 2,66,375

Less : Current Liabilities 2,98,500 90,125

Representing Capital : 1,82,500 1,76,250


a) Revalued figures of Fixed and Current Assets were as follows :

Star Rs. Moon Rs.

Fixed Assets 3,55,000 1,95,000


b) The debtors and creditors - include Rs. 21,675 owed by Star to Moon. The purchase consideration

is satisfied by issue of the following shares and debentures:

i) 30,000 equity shares of Neptune Ltd., to Star and Moon in the proportion to the profitability of their respective business based on the average net profit during the last

three years which were as follows :

Star Moon

2008 Profit 2,24,788 1,36,950

2009 (Loss)/Profit (1,250) 1,71,050

2010 Profit 1,88,962 1,79,500

ii) 15% debentures in Neptune Ltd., at par to provide an income equivalent to 8% return on

capital employed in their respective business as on 31st December, 2010 after revaluation

of assets.

You are requested to :

1) Compute the amount of debentures and shares to be issued to Star and Moon.

2) A Balance Sheet of Neptune Ltd., showing the position immediately after amalgamation.

Q.No.5: The Balance Sheets of ‘A Ltd.’ & ‘B Ltd.’ as on 31st March, 2011 were as follows

(Rs. in ‘000)

Liabilities A Ltd. B Ltd. Assets A Ltd. B Ltd.

Share Capital:

20,00,000 equity shares

of Rs.10 each


of Rs.10 each

20,000

----

----

4,000

Patents

Land and Building

Plant and machinery

Motor Vehicles

Furniture

Investments

2,000

6,000

15,500

--

--

1,150

--

--

--

600

350

--

60

General reserve

Profit and loss A/c.

Creditors

8,000

900

500

--

320

210

Stocks

Debtors

Cash-Bank balance

3,500

800

450

2,790

620

170

29,400 4,530 29,400 4,530

A new company, ‘C Ltd.’ was formed to acquire the assets and liabilities of ‘A Ltd.’ and ‘B Ltd.’. The terms of acquisition of business were as under:

1) ‘C Ltd.’ to have an authorised capital of Rs.4,50,00,000 divided into 50,000 13 per cent preference shares of Rs.100 each and 40,00,000 equity shares of Rs.10 each.

2) Business of ‘A Ltd.’ valued at Rs.3,00,00,000; settlement being made by issue of fully-paid equity

shares at Rs.12.

3) Business of ‘B Ltd.’ valued at Rs.48,00,000 to be satisfied by issue of fully-paid equity shares at Rs.12.

4) ‘C Ltd.’ made a public issue of 30,000 preference shares at par and 3,00,000 equity shares at

Rs.12. The issue was underwritten at the commission allowed by law and was fully subscribed. All obligations were met.

5) ‘D’, who mooted the scheme, was allotted 40,000 equity shares (fully-paid) at Rs.12 in

consideration of his services.


(i) Make journal entries in the books ‘A Ltd.’, and ‘B Ltd.’, to close their books of accounts, and

(ii) Make opening entries in the books of ‘C Ltd.’ and prepare the balance sheet of ‘C. Ltd.’

Q.No.6: (PCC-May 11) XYZ Limited was incorporated for taking over the business of Y from 1st

April, 2010. The following is the Balance Sheet of Y as on 31st March, 2010.


Capital

Loans

Creditors

10,08,000

12,00,000

7,12,000

Land and Building

Plant and Machinery

Furniture

Sundry Debtors

16,00,000

2,80,000

2,00,000

8,40,000

29,20,000 29,20,000

The company takes over the business with fixed assets and loans on the following terms:

1. The fixed assets should be depreciated @ 10%.

2. The value of Goodwill is estimated at Rs. 8,00,000.

The company realized Rs. 8,00,000 from Sundry debtors as the agent of the vendor in full

settlement and discharged all the trade creditors by paying Rs. 6,80,000 for a commission of 3%

on the amount collected and 2% on the amount paid. (Commission is treated as pre-

incorporation profit)

The lenders accepted 10% preference shares of Rs. 100 each in discharge of their loan. After

realization of debts and discharge of the liabilities, the total amount due to the vendor was settled

by payment of Rs. 54,400 in cash and the balance in shares of fully paid equity shares of Rs. 10

each.


(i) Compute purchase consideration

(ii) Pass Journal Entries in the books of XYZ Limited after taking over the business of Y.

(iii) Prepare the Balance sheet of the company as on 1st April, 2010.

Q.No.7: (IPCC-Gr.-I-May10) The Balance Sheet of Reckless Ltd. as on 31st March, 2008 is as

follows:

Assets Rs.

Freehold Premises 2,20,000

61

Machinery

Furniture & Fittings

Stock

Sundry Debtors

Less: Provision for Bad Debts

Cash in hand

Cash at bank

Bills Receivable

80,000

4,000

1,77,000

90,800

3,87,400

76,000

2,300

1,56,500

15,000

11,25,000

Liabilities

60,000 Equity Shares of Rs. 10 each

Prior Incorporation profit

Contingency Reserve

Profit & Loss Appropriation Account

Acceptances

Creditors

Provision for Income-tax

6,00,000

21,000

1,35,000

1,26,000

20,000

1,13,000

1,10,000

11,25,000

Careful Ltd. decided to take over Reckless Ltd. from 31st March, 2008 with the following assets at

value noted against them:

Bills Receivable 15,000


Furniture and Fittings 80,000

Machinery 1,60,000

Stock 3,45,000

1/4 of the consideration was satisfied by the allotment of fully paid preference share of Rs. 100

each at par which carried 13% dividend on cumulative basis. The balance was paid in the form of

Careful Ltd.’s equity shares of Rs. 10 each, Rs. 8 paid up.

Sundry Debtors realized Rs. 79,500. Acceptances were settled for Rs. 19,000. Income-tax

authorities fixed the taxation liability at Rs. 1,11,600. Creditors were finally settled with the cash

remaining after meeting liquidation expense amounting to Rs. 4,000.


(i) Calculate the number of equity shares and preference shares to be allotted by Careful Ltd.

in discharge of consideration.

(ii) Prepare the important ledger accounts in the books of Reckless Ltd.; and

(iii) Pass Journal entries in the books of Careful Ltd. with narration.

Q.No.8: (IPCC-Gr.-I-May 11) The Balance Sheet of Mars Limited as on 31st March, 2011 was as

follows:


Share Capital:

1,00,000 Equity Shares of Rs. 10 each fully paid up

Reserve and Surplus

Capital Reserve

Contingency Reserve

Profit and Loss A/c

Current Liabilities & Provisions

Bills payable

10,00,000

42,000

2,70,000

2,52,000

40,000

Fixed Assets

Land and building

Current Assets

Stock

Sundry Debtors 1,60,000

Less: Provision for

doubtful debts 8,000

Bills receivable

Cash at Bank

7,64,000

7,75,000

1,52,000

30,000

3,29,000

62


Sundry Creditors

Provision for Income tax

2,26,000

2,20,000

20,50,000 20,50,000

On 1st April, 2011 Jupiter Limited agreed to absorb Mars Limited on the following terms and

conditions:

(1) Jupiter Limited will take over the assets at the following values:

Land and building Rs. 10,80,000

Stock Rs. 7,70,000

Bills receivable Rs. 30,000

(2) Purchase consideration will be settled by Jupiter Ltd. as under:

4,100 fully paid 10% preference shares of Rs. 100 will be issued and the balance will be

settled by issuing equity shares of Rs. 10 each at Rs. 8 paid up.

(3) Liquidation expenses are to be reimbursed by Jupiter Ltd. to the extent of Rs. 5,000.

(4) Sundry debtors realized Rs. 1,50,000. Bills payable were settled for Rs. 38,000. Income tax

authorities fixed the taxation liability at Rs. 2,22,000 and the same was paid.

(5) Creditors were finally settled with the cash remaining after meeting liquidation expenses

amounting to Rs. 8,000.


(i) Calculate the number of equity shares and preference shares to be allotted by Jupiter

limited in discharge of purchase consideration.

(ii) Prepare the Realisation A/c, Bank Account, Equity Shareholders Account and Jupiter

Limited’s account in the books of Mars Ltd.

Q.No.9: (PCC-Nov. 10) Balance Sheets as on 31st March, 2010

Liabilities Gee Ltd.

Rs.

Pee Ltd.

Rs.

Assets Gee Ltd.

Rs.

Pee Ltd.

Rs.

Equity Share Capital

(Rs. 10 per share)

14% Preference

Share

Capital (Rs. 100

each)

General Reserve

Export Profit Reserve


Profit and Loss

Account

15% Debentures (Rs. 100 each)

Trade Creditors

Bills Payables

Other Current

Liabilities

25,00,000

11,00,000

–

2,50,000

1,50,000

–

3,75,000

2,50,000

1,50,000

75,000

1,00,000

15,00,000

8,50,000

–

2,50,000

1,00,000

50,000

1,25,000

1,75,000

75,000

1,00,000

75,000

Buildings

Plant and Machinery

Furniture and

Fixtures

Investments

Stock

Debtors

Bills Receivables

Cash at Bank

12,50,000

16,25,000

2,87,500

3,50,000

6,25,000

4,00,000

50,000

3,62,500

7,75,000

8,50,000

1,75,000

2,50,000

4,75,000

4,60,000

55,000

2,60,000

49,50,000 33,00,000 49,50,000 33,00,000

All the bills receivables of Pee Ltd. were having Gee Ltd’s acceptances.

Gee Ltd. takes over Pee Ltd. on 1st April, 2010. The purchase consideration is discharged as follows:

1. Issued 1,65,000 equity shares of Rs. 10 each at par to the equity shareholders of Pee Ltd.

2. Issued 15% preference shares of Rs. 100 each to discharge the preference shareholders of Pee

Ltd. at 10% premium.

63

3. The debentures of Pee Ltd. will be converted into equivalent number of debentures of Gee Ltd.

4. The Statutory Reserves of Pee Ltd. are to be maintained for two more years.

5. Expenses of amalgamation amounting to Rs. 10,000 will be borne by Gee Ltd.

Show the opening Journal entries and the opening balance sheet of Gee Ltd. as at 1st April, 2010 after amalgamation, on the assumption that the amalgamation is in the nature of the merger.

Q.No.10: X Limited is absorbed by Y Limited. Given below are the Balance Sheets of the two

companies prepared after revaluation of their assets on a uniform basis.

Balance Sheet of X Limited


Authorised Share Capital:

9,000 Equity Shares of Rs.150

each

Paid up Share Capital:


each Rs.135 paid up

General Reserve

Profit and Loss A/c.

Sundry Creditors

13,50,000

12,15,000

4,03,500

15,000

55,000

Sundry Assets

Cash-in-hand

16,85,000

3,500

16,88,500 16,88,500

Balance Sheet of Y Limited




each


40,000 Equity Shares of Rs.75 paid

up

General Reserve


Sundry Creditors

45,00,000

30,00,000

12,85,000

35,000

65,000

Sundry Assets

Cash-in-hand

43,57,500

27,500

43,85,000 43,85,000

The holder of every three Shares in X Limited was to receive five shares in the Y Limited plus cash as

much as is necessary to adjust the rights of shareholders of both the Companies in accordance with the intrinsic values of the share as per the respective Balance Sheets.

Pass necessary journal entries in the books of Y Limited and prepare the Balance Sheet giving effect

to the scheme of absorption. Entries are to be made at par value only.

Q.No.11: The following are the Balance Sheet of A Co. Ltd. and B Co. Ltd. as on 30th September, 2011.

A Co. Ltd.


Share Capital-


each, fully paid-up

General Reserve


12% Debentures of Rs.100 each

5,00,000

1,70,000

30,000

1,00,000

Buildings

Machinery

Stock

Debtors

1,50,000

5,50,000

80,000

70,000

15,000

64

Trade Creditors

Employees Provident Fund

50,000

15,000

Cash

8,65,000 8,65,000

B Co. Ltd.


Share Capital


each

Trade Creditors

3,00,000

40,000

Machinery

Stock

Debtors 50,000

Less: Prov. for Doubtful Debt 5,000

Cash

2,50,000

40,000

45,000

5,000

3,40,000 3,40,000

The two companies agree to amalgamate and form a new company called C. Co. Ltd. which takes

over all the assets and liabilities of both the companies on 1st October, 2011.

The purchase consideration is agreed at Rs. 6,61,500 and Rs. 3,15,000 for A Co. Ltd. and B Co. Ltd.

and show the opening entries in the books of C. Co. Ltd. Also prepare the opening Balance Sheet in the books of C. Co. Ltd. as on 1st October, 2011. The authorised capital of C Co. Ltd. is 2,00,000

equity shares of Rs.10 each.

65

Chapter-16: Internal Reconstruction

Q.No.1: The Summarised assets and liabilities position of Hopeful Ltd. as on 1-4-2011 as follows:

Liabilities Rs.

Authorised Capital: 80,000 Equity Shares of Rs.10 each

2,000 9% Preference shares of Rs.100 each

8,00,000

2,00,000

Issued and Paid-up Capital:

40,000 Equity Shares of Rs.10 each

Amount paid on each share of Rs.7.50 2,000 9% Preference shares of Rs.100 each fully paid

3,00,000

2,00,000

Unsecured Loans Trade Creditors

Bank Overdraft

80,000 48,000

16,800

TOTAL 6,44,800

Assets

Goodwill Land and Building

Plant and Machinery Investments

Stock

Debtors Cash-in-hand


20,000 1,60,000

1,20,000 24,000

54,000

1,18,000 6,000

1,42,800

TOTAL 6,44,800

Notes:

a) Dividend on preference shares has not been declared for 2 years.

b) No provision has been made for sales tax liability of Rs.9,600.

Following scheme of Reconstruction has been approved by the court.

a) Uncalled capital is to be called up in full and equity shares are to be reduced to Rs.5 per

share.

b) Sales Tax Liability of Rs.9,000 is to be paid immediately.

c) Land and Building are to be shown in the Balance Sheet, at full market value of Rs.2,20,000 and goodwill is to be written off.

d) Trade Creditors have consented for 25% remission of liability on a condition that 25% of the

net liability after remission is paid forthwith and the balance is paid within one year.

e) Investments are to be taken over by Bank in full settlement of the overdraft balance.

f) Preference shareholders have agreed to give up their right for the two years dividend and accept 12 fully paid equity shares of Rs.5 each for each fully paid preference share.


1) Pass necessary Journal Entries recording the above transactions: and

2) Draw up a final Balance Sheet after giving effect to the scheme of Reconstruction.

Q.No.2: The following is the Balance Sheet of Rocky Ltd. as at March 31, 2011:

Liabilities Rs. in

lacs

Fully paid equity shares of Rs. 10 each 500 Capital Reserve 6

12% Debentures 400 Debentures Interest outstanding 48

Trade Creditors 165

Directors’ Remuneration Outstanding 10 Other Outstanding Expenses 11

Provisions 33

1,173

Assets

Goodwill 15

66

Land and Building 184

Plant and Machinery 286 Furniture and Fixtures 41

Stock 142 Debtors 80

Cash at Bank 27

Discount on Issue of Debentures 8 Profit and Loss Account 390

1,173

The following scheme of internal reconstruction was framed, approved by the Court, all the

concerned parties and implemented:

1. All the equity shares be converted into the same number of fully –paid equity shares of Rs. 2.50

P. each.

2. Directors agree to forgo their outstanding remuneration. 3. The debenture holders also agree to forgo outstanding interest in return of their 12% debentures

being converted into 13% debentures. 4. The existing shareholders agree to subscribe for cash, fully paid equity shares of Rs. 2.50 P. each

for Rs. 125 lacs.

5. Trade creditors are given the option of either to accept fully- paid equity shares of Rs. 2.50 each for the amount due to them or to accept 80% of the amount due in cash. Creditors for Rs. 65

lacs accept equity shares whereas those for Rs. 100 lacs accept Rs. 80 lacs in cash in full settlement.

The Assets are revalued as under:

Rs. in lacs

Land and Building 230 Plant and Machinery 220


Pass Journal Entries for all the above mentioned transaction and draft the company’s Balance Sheet

immediately after the reconstruction.

Q.No.3: Green Limited had decided to reconstruct the Balance Sheet since it had accumulated huge

losses. The following is the Balance Sheet of the Company on 31.3.2011 before reconstruction:

Balance Sheet of Green Limited as at 31.3.2011


Share Capital: Fixed Assets:

Authorised: Goodwill 20,00,000

1,50,000 Equity shares of Rs. 50 each 75,00,000 Building 10,00,000

Subscribed and Paid up Capital: Plant 10,00,000

50,000 Equity Shares of Rs. 50 each 25,00,000 Computers 25,00,000


each, Rs. 40 per share paid up

40,00,000 Investments NIL

Secured Loans: Current Assets NIL

12% First Debentures 5,00,000 Profit and Loss A/c - Loss 20,00,000

12% Second Debentures 10,00,000

Current Liabilities:

Sundry Creditors 5,00,000

85,00,000 85,00,000

The following is the interest of Mr. X and Mr. Y in Green Limited:

Mr. X Rs. Mr. Y Rs.

12% First Debentures 3,00,000 2,00,000

12% Second Debentures 7,00,000 3,00,000

Sundry Creditors 2,00,000 1,00,000

12,00,000 6,00,000

67

Fully paid up Rs. 50 shares 3,00,000 2,00,000

Partly paid up shares (Rs. 40 paid up) 5,00,000 5,00,000

The following scheme of reconstruction is approved by all parties interested and also by the court:

a. Uncalled capital is to be called up in full and such shares and the other fully paid up shares be converted into equity shares of Rs. 20 each.

b. Mr. X is to cancel Rs. 7,00,000 of his total debt (other than share amount) and to pay Rs. 2 lakhs

to the company and to receive new 14% First Debentures for the balance amount.

c. Mr. Y is to cancel Rs. 3,00,000 of his total debt (other than equity shares) and to accept new 14% First Debentures for the balance.

d. The amount thus rendered available by the scheme shall be utilised in writing off of Goodwill,

Profit and Loss A/c Loss and the balance to write off the value of computers.

You are required to draw the Journal Entries to record the same and also show the Balance Sheet of the reconstructed company.

68

Chapter-15: Amalgamation - (New Schedule VI)

Q.No.1: (IPCC-Gr.-I-May 10) The abstract of the Balance Sheet of the AXE Ltd. as at 31st March

2011, are as follows:

Liabilities Rs.


12% preference share capital (Rs. 100 each)

13% Debentures

15,00,000

8,00,000

3,00,000

On the 31st March, 2011 BXE Ltd. agreed to take over AXE Ltd. on the following terms:

(4) For each preference share in AXE Ltd., Rs. 10 in cash and one 9% preference share of Rs.

100 in BXE Ltd.

(5) For each equity share in AXE Ltd., Rs. 20 in cash and one equity share in BXE Ltd. of Rs. 100

each. It was decided that the share in BXE Ltd. will be issued at market price Rs. 140 per

share.

(6) Liquidation expenses of AXE Ltd. are to be reimbursed by BXE Ltd. to the extent of Rs.

10,000. Actual expenses amounted to Rs. 12,500.

You are required to compute the amount of purchase consideration.

Q.No.2: The Indo-Gulf Co. Ltd. sells its business to the Continental Co. Ltd. as on December 31, 2010, on which date its Balance Sheet was as under:


Paid-up Capital 2000 shares 2,00,000 Freehold property 1,50,000

Of Rs.100 each Goodwill 50,000

Debentures 1,00,000 Plant and Tools 83,000

Trade Creditors 30,000 Stock 35,000

Reserve Fund 50,000 Bills Receivable 4,500

Profit & Loss Account 20,000 Sundry Debtors 27,500

Cash at Bank 50,000

4,00,000 4,00,000

The Continental Co. Ltd. agreed to take over the Assets (exclusive of cash at Bank and Goodwill) at

10 percent less than the book value, to pay Rs. 75,000 for Goodwill, and to take over the Debentures.

The purchase consideration was to be discharged by the allotment to the Indo-Gulf Ltd. of 1,500

shares of Rs.100 each at premium of Rs.10 per share and the balance in cash.

The cost of the liquidation amounted to Rs. 3,000. Show the necessary Accounts in the books of the

Indo-Gulf Co. Ltd. and show the necessary journal entries recording the transactions in the books of

the Continental Co. Ltd.

Q.No.3: The following are the Balance Sheets of Strong Limited and Small Limited as at 31.12. 2010:

Liabilities Strong

Ltd.

Rs.

Small

Ltd.

Rs.

Assets Strong

Ltd.

Rs.

Small

Ltd.

Rs.

Share Capital

Shares of the face value

of Rs.10 each

Reserves

Secured Loans

10% Debentures

Current Liabilities

Trade Creditors

1,50,000

95,000

--

47,000

1,20,000

10,000

20,000

32,000

Fixed Assets

at cost less depreciation

Current Assets:

Stock

Trade Debtors

Balance at Bank

1,40,000

42,000

30,000

80,000

75,000

47,000

50,000

10,000

2,92,000 1,82,000 2,92,000 1,82,000

Strong Limited agreed to absorb Small Limited as on 31st December, 2010 on the following terms:

69

5) Strong Limited agreed to repay 10% debentures of Small Limited.

6) Strong Limited to revalue its Fixed Assets at Rs.1,95,000, to be incorporated in the books.

7) Shares of both companies to be valued on net Assets basis, after considering Rs. 50,000 towards value of goodwill of Small Limited.

8) The cost of absorption of Rs. 3,000 are met by Strong Limited.


(a) Calculate the ratio of exchange of shares.

(b) Give journal entries in the books of Strong Limited.

(c) Construct the bank account to arrive at the Balance on absorption.

Q.No.4: Star and Moon had been carrying on business independently. They agreed to amalgamate

and form a new company Neptune Ltd. with an authorised share capital of Rs. 2,00,000 divided into 40,000 equity shares of Rs. 5 each. On 31st December, 2010, the respective Balance Sheets of Star

and Moon were as follows :

Star Rs. Moon

Rs.

Fixed Assets 3,17,500 1,82,500


4,81,000 2,66,375

Less : Current Liabilities 2,98,500 90,125

Representing Capital : 1,82,500 1,76,250


c) Revalued figures of Fixed and Current Assets were as follows :

Star Rs. Moon Rs.

Fixed Assets 3,55,000 1,95,000


d) The debtors and creditors - include Rs. 21,675 owed by Star to Moon. The purchase consideration

is satisfied by issue of the following shares and debentures:

iii) 30,000 equity shares of Neptune Ltd., to Star and Moon in the proportion to the profitability of their respective business based on the average net profit during the last

three years which were as follows :

Star Moon

2008 Profit 2,24,788 1,36,950

2009 (Loss)/Profit (1,250) 1,71,050

2010 Profit 1,88,962 1,79,500

iv) 15% debentures in Neptune Ltd., at par to provide an income equivalent to 8% return on

capital employed in their respective business as on 31st December, 2010 after revaluation

of assets.

You are requested to :

3) Compute the amount of debentures and shares to be issued to Star and Moon.

4) A Balance Sheet of Neptune Ltd., showing the position immediately after amalgamation.

Q.No.5: The Balance Sheets of ‘A Ltd.’ & ‘B Ltd.’ as on 31st March, 2011 were as follows

(Rs. in ‘000)

Liabilities A Ltd. B Ltd. Assets A Ltd. B Ltd.

Share Capital:


of Rs.10 each


of Rs.10 each

20,000

----

----

4,000

Patents

Land and Building

Plant and machinery

Motor Vehicles

Furniture

Investments

2,000

6,000

15,500

--

--

1,150

--

--

--

600

350

--

70

General reserve

Profit and loss A/c.

Creditors

8,000

900

500

--

320

210

Stocks

Debtors

Cash-Bank balance

3,500

800

450

2,790

620

170

29,400 4,530 29,400 4,530

A new company, ‘C Ltd.’ was formed to acquire the assets and liabilities of ‘A Ltd.’ and ‘B Ltd.’. The terms of acquisition of business were as under:

6) ‘C Ltd.’ to have an authorised capital of Rs.4,50,00,000 divided into 50,000 13 per cent preference shares of Rs.100 each and 40,00,000 equity shares of Rs.10 each.

7) Business of ‘A Ltd.’ valued at Rs.3,00,00,000; settlement being made by issue of fully-paid equity

shares at Rs.12.

8) Business of ‘B Ltd.’ valued at Rs.48,00,000 to be satisfied by issue of fully-paid equity shares at Rs.12.

9) ‘C Ltd.’ made a public issue of 30,000 preference shares at par and 3,00,000 equity shares at

Rs.12. The issue was underwritten at the commission allowed by law and was fully subscribed. All obligations were met.

10) ‘D’, who mooted the scheme, was allotted 40,000 equity shares (fully-paid) at Rs.12 in

consideration of his services.


(i) Make journal entries in the books ‘A Ltd.’, and ‘B Ltd.’, to close their books of accounts, and

(ii) Make opening entries in the books of ‘C Ltd.’ and prepare the balance sheet of ‘C. Ltd.’

Q.No.6: (PCC-May 11) XYZ Limited was incorporated for taking over the business of Y from 1st

April, 2010. The following is the Balance Sheet of Y as on 31st March, 2010.


Capital

Loans

Creditors

10,08,000

12,00,000

7,12,000

Land and Building

Plant and Machinery

Furniture

Sundry Debtors

16,00,000

2,80,000

2,00,000

8,40,000

29,20,000 29,20,000

The company takes over the business with fixed assets and loans on the following terms:

3. The fixed assets should be depreciated @ 10%.

4. The value of Goodwill is estimated at Rs. 8,00,000.

The company realized Rs. 8,00,000 from Sundry debtors as the agent of the vendor in full

settlement and discharged all the trade creditors by paying Rs. 6,80,000 for a commission of 3%

on the amount collected and 2% on the amount paid. (Commission is treated as pre-

incorporation profit)

The lenders accepted 10% preference shares of Rs. 100 each in discharge of their loan. After

realization of debts and discharge of the liabilities, the total amount due to the vendor was settled

by payment of Rs. 54,400 in cash and the balance in shares of fully paid equity shares of Rs. 10

each.


(i) Compute purchase consideration

(ii) Pass Journal Entries in the books of XYZ Limited after taking over the business of Y.

(iii) Prepare the Balance sheet of the company as on 1st April, 2010.

Q.No.7: (IPCC-Gr.-I-May10) The Balance Sheet of Reckless Ltd. as on 31st March, 2008 is as

follows:

Assets Rs.


71

Machinery

Furniture & Fittings

Stock

Sundry Debtors

Less: Provision for Bad Debts

Cash in hand

Cash at bank

Bills Receivable

80,000

4,000

1,77,000

90,800

3,87,400

76,000

2,300

1,56,500

15,000

11,25,000

Liabilities

60,000 Equity Shares of Rs. 10 each

Prior Incorporation profit

Contingency Reserve

Profit & Loss Appropriation Account

Acceptances

Creditors

Provision for Income-tax

6,00,000

21,000

1,35,000

1,26,000

20,000

1,13,000

1,10,000

11,25,000

Careful Ltd. decided to take over Reckless Ltd. from 31st March, 2008 with the following assets at

value noted against them:

Bills Receivable 15,000


Furniture and Fittings 80,000

Machinery 1,60,000

Stock 3,45,000

1/4 of the consideration was satisfied by the allotment of fully paid preference share of Rs. 100

each at par which carried 13% dividend on cumulative basis. The balance was paid in the form of

Careful Ltd.’s equity shares of Rs. 10 each, Rs. 8 paid up.

Sundry Debtors realized Rs. 79,500. Acceptances were settled for Rs. 19,000. Income-tax

authorities fixed the taxation liability at Rs. 1,11,600. Creditors were finally settled with the cash

remaining after meeting liquidation expense amounting to Rs. 4,000.


(iv) Calculate the number of equity shares and preference shares to be allotted by Careful Ltd.

in discharge of consideration.

(v) Prepare the important ledger accounts in the books of Reckless Ltd.; and

(vi) Pass Journal entries in the books of Careful Ltd. with narration.

Q.No.9: (PCC-Nov. 10) Balance Sheets as on 31st March, 2010

Liabilities Gee Ltd. Rs.

Pee Ltd.

Rs.

Assets Gee Ltd. Rs.

Pee Ltd.

Rs.

Equity Share Capital (Rs. 10 per share)

14% Preference

Share

Capital (Rs. 100 each)

General Reserve

Export Profit Reserve

Investment Allowance

Reserve

25,00,000

11,00,000

–

2,50,000

1,50,000

–

15,00,000

8,50,000

–

2,50,000

1,00,000

50,000

Buildings

Plant and Machinery

Furniture and

Fixtures

Investments

Stock

Debtors

Bills Receivables

Cash at Bank

12,50,000

16,25,000

2,87,500

3,50,000

6,25,000

4,00,000

50,000

3,62,500

7,75,000

8,50,000

1,75,000

2,50,000

4,75,000

4,60,000

55,000

2,60,000

72

Liabilities Gee Ltd.

Rs.

Pee Ltd.

Rs.

Assets Gee Ltd.

Rs.

Pee Ltd.

Rs.

Profit and Loss

Account

15% Debentures (Rs.

100 each)

Trade Creditors

Bills Payables

Other Current

Liabilities

3,75,000

2,50,000

1,50,000

75,000

1,00,000

1,25,000

1,75,000

75,000

1,00,000

75,000

49,50,000 33,00,000 49,50,000 33,00,000

All the bills receivables of Pee Ltd. were having Gee Ltd’s acceptances.

Gee Ltd. takes over Pee Ltd. on 1st April, 2010. The purchase consideration is discharged as follows:

6. Issued 1,65,000 equity shares of Rs. 10 each at par to the equity shareholders of Pee Ltd.

7. Issued 15% preference shares of Rs. 100 each to discharge the preference shareholders of Pee

Ltd. at 10% premium.

8. The debentures of Pee Ltd. will be converted into equivalent number of debentures of Gee Ltd.

9. The Statutory Reserves of Pee Ltd. are to be maintained for two more years.

10. Expenses of amalgamation amounting to Rs. 10,000 will be borne by Gee Ltd.

Show the opening Journal entries and the opening balance sheet of Gee Ltd. as at 1st April, 2010 after

amalgamation, on the assumption that the amalgamation is in the nature of the merger.

Q.No.10: X Limited is absorbed by Y Limited. Given below are the Balance Sheets of the two companies prepared after revaluation of their assets on a uniform basis.

Balance Sheet of X Limited




each



each Rs.135 paid up

General Reserve


Sundry Creditors

13,50,000

12,15,000

4,03,500

15,000

55,000

Sundry Assets

Cash-in-hand

16,85,000

3,500

16,88,500 16,88,500

Balance Sheet of Y Limited




each


40,000 Equity Shares of Rs.75 paid

up

General Reserve


Sundry Creditors

45,00,000

30,00,000

12,85,000

35,000

65,000

Sundry Assets

Cash-in-hand

43,57,500

27,500

43,85,000 43,85,000

73

The holder of every three Shares in X Limited was to receive five shares in the Y Limited plus cash as

much as is necessary to adjust the rights of shareholders of both the Companies in accordance with the intrinsic values of the share as per the respective Balance Sheets.

Pass necessary journal entries in the books of Y Limited and prepare the Balance Sheet giving effect

to the scheme of absorption. Entries are to be made at par value only.

Q.No.11: The following are the Balance Sheet of A Co. Ltd. and B Co. Ltd. as on 30th September, 2011.

A Co. Ltd.


Share Capital-


each, fully paid-up

General Reserve


12% Debentures of Rs.100 each

Trade Creditors

Employees Provident Fund

5,00,000

1,70,000

30,000

1,00,000

50,000

15,000

Buildings

Machinery

Stock

Debtors

Cash

1,50,000

5,50,000

80,000

70,000

15,000

8,65,000 8,65,000

B Co. Ltd.


Share Capital


each

Trade Creditors

3,00,000

40,000

Machinery

Stock

Debtors 50,000

Less: Prov. for Doubtful Debt 5,000

Cash

2,50,000

40,000

45,000

5,000

3,40,000 3,40,000

The two companies agree to amalgamate and form a new company called C. Co. Ltd. which takes

over all the assets and liabilities of both the companies on 1st October, 2011.

The purchase consideration is agreed at Rs. 6,61,500 and Rs. 3,15,000 for A Co. Ltd. and B Co. Ltd. and show the opening entries in the books of C. Co. Ltd. Also prepare the opening Balance Sheet in

the books of C. Co. Ltd. as on 1st October, 2011. The authorised capital of C Co. Ltd. is 2,00,000 equity shares of Rs.10 each.

74

Chapter-16: Internal Reconstruction - (New Schedule VI)

Q.No.1: The Summarised assets and liabilities position of Hopeful Ltd. as on 1-4-2011 as follows:

Liabilities Rs.

Authorised Capital: 80,000 Equity Shares of Rs.10 each

2,000 9% Preference shares of Rs.100 each

8,00,000

2,00,000

Issued and Paid-up Capital:

40,000 Equity Shares of Rs.10 each

Amount paid on each share of Rs.7.50 2,000 9% Preference shares of Rs.100 each fully paid

3,00,000

2,00,000

Unsecured Loans Trade Creditors

Bank Overdraft

80,000 48,000

16,800

TOTAL 6,44,800

Assets

Goodwill Land and Building

Plant and Machinery Investments

Stock

Debtors Cash-in-hand


20,000 1,60,000

1,20,000 24,000

54,000

1,18,000 6,000

1,42,800

TOTAL 6,44,800

Notes:

c) Dividend on preference shares has not been declared for 2 years.

d) No provision has been made for sales tax liability of Rs.9,600.

Following scheme of Reconstruction has been approved by the court.

g) Uncalled capital is to be called up in full and equity shares are to be reduced to Rs.5 per

share.

h) Sales Tax Liability of Rs.9,000 is to be paid immediately.

i) Land and Building are to be shown in the Balance Sheet, at full market value of Rs.2,20,000 and goodwill is to be written off.

j) Trade Creditors have consented for 25% remission of liability on a condition that 25% of the

net liability after remission is paid forthwith and the balance is paid within one year.

k) Investments are to be taken over by Bank in full settlement of the overdraft balance.

l) Preference shareholders have agreed to give up their right for the two years dividend and accept 12 fully paid equity shares of Rs.5 each for each fully paid preference share.


3) Pass necessary Journal Entries recording the above transactions: and

4) Draw up a final Balance Sheet after giving effect to the scheme of Reconstruction.

Q.No.2: The following is the Balance Sheet of Rocky Ltd. as at March 31, 2011:

Liabilities Rs. in

lacs

Fully paid equity shares of Rs. 10 each 500 Capital Reserve 6

12% Debentures 400 Debentures Interest outstanding 48

Trade Creditors 165

Directors’ Remuneration Outstanding 10 Other Outstanding Expenses 11

Provisions 33

1,173

Assets

Goodwill 15

75

Land and Building 184

Plant and Machinery 286 Furniture and Fixtures 41


Cash at Bank 27

Discount on Issue of Debentures 8 Profit and Loss Account 390

1,173

The following scheme of internal reconstruction was framed, approved by the Court, all the

concerned parties and implemented:

6. All the equity shares be converted into the same number of fully –paid equity shares of Rs. 2.50

P. each.

7. Directors agree to forgo their outstanding remuneration. 8. The debenture holders also agree to forgo outstanding interest in return of their 12% debentures

being converted into 13% debentures. 9. The existing shareholders agree to subscribe for cash, fully paid equity shares of Rs. 2.50 P. each

for Rs. 125 lacs.

10. Trade creditors are given the option of either to accept fully- paid equity shares of Rs. 2.50 each for the amount due to them or to accept 80% of the amount due in cash. Creditors for Rs. 65

lacs accept equity shares whereas those for Rs. 100 lacs accept Rs. 80 lacs in cash in full settlement.

The Assets are revalued as under:

Rs. in lacs

Land and Building 230 Plant and Machinery 220


Pass Journal Entries for all the above mentioned transaction and draft the company’s Balance Sheet

immediately after the reconstruction.

Q.No.4: Green Limited had decided to reconstruct the Balance Sheet since it had accumulated huge

losses. The following is the Balance Sheet of the Company on 31.3.2011 before reconstruction:

Balance Sheet of Green Limited as at 31.3.2011


Share Capital: Fixed Assets:

Authorised: Goodwill 20,00,000

1,50,000 Equity shares of Rs. 50 each 75,00,000 Building 10,00,000

Subscribed and Paid up Capital: Plant 10,00,000

50,000 Equity Shares of Rs. 50 each 25,00,000 Computers 25,00,000


each, Rs. 40 per share paid up

40,00,000 Investments NIL

Secured Loans: Current Assets NIL

12% First Debentures 5,00,000 Profit and Loss A/c - Loss 20,00,000

12% Second Debentures 10,00,000

Current Liabilities:

Sundry Creditors 5,00,000

85,00,000 85,00,000

The following is the interest of Mr. X and Mr. Y in Green Limited:

Mr. X Rs. Mr. Y Rs.

12% First Debentures 3,00,000 2,00,000

12% Second Debentures 7,00,000 3,00,000

Sundry Creditors 2,00,000 1,00,000

12,00,000 6,00,000

76

Fully paid up Rs. 50 shares 3,00,000 2,00,000

Partly paid up shares (Rs. 40 paid up) 5,00,000 5,00,000

The following scheme of reconstruction is approved by all parties interested and also by the court:

e. Uncalled capital is to be called up in full and such shares and the other fully paid up shares be converted into equity shares of Rs. 20 each.

f. Mr. X is to cancel Rs. 7,00,000 of his total debt (other than share amount) and to pay Rs. 2 lakhs

to the company and to receive new 14% First Debentures for the balance amount.

g. Mr. Y is to cancel Rs. 3,00,000 of his total debt (other than equity shares) and to accept new 14% First Debentures for the balance.

h. The amount thus rendered available by the scheme shall be utilised in writing off of Goodwill,

Profit and Loss A/c Loss and the balance to write off the value of computers.

You are required to draw the Journal Entries to record the same and also show the Balance Sheet of the reconstructed company.

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